Not allowed to max 401K

[Anonymous]

My employer has put a restriction on the % of my paycheck I can contribute to 401K. This new contribution rate will not allow me to max 401K this year. Apparently IRS requires employers to restrict contributions for highly compensated employees (salary >$120,000), if non HCEs have low contribution rates.

Has anyone encountered this? Are there any other avenues for me to contribute on a pre tax basis?

[Anonymous]

Yes it's true and it's as a result of what is called discrimination testing. Your only other avenue's are if your employer offers a high deductible health plan that allows a health savings account - that money is contributed pre-tax and whatever you don't use rolls over from year to year.

Also some companies also offer a supplemental deferred compensation plan. You can ask if they would consider implementing this. We have one, but the downside is that you have to take a payout when you leave the company, however it can be structured over 5, 10 or 15 years.

People, this is not the FSA I am speaking about.

[Anonymous]

Thanks PP. My company does offer a high deductible plan but I have done math and prefer the PPO option given our expected medical expenses this year and next.

I am still trying to wrap my brain around the rationale for this rule. There is already a contribution ceiling per year to ensures the wealthy do not get a sizeable tax break or unfair advantage.

[Anonymous]

I'm confused. I thought 18k was the limit?!

[Anonymous]

Your employer needs to do a better job of getting lower paid workers to participate in the plan at higher rates. Things that help are automatic enrollment and generous matches

[Anonymous]

Anonymous wrote:Your employer needs to do a better job of getting lower paid workers to participate in the plan at higher rates. Things that help are automatic enrollment and generous matches

+1

For years, my DH contributed to his and each year we were required to take distributions as the 401k was "top heavy." We finally just stopped participating to avoid the hassle. Drives me insane.

[Anonymous]

My job has a safe harbor election, everyone gets 4% of their comp contributed to the 401k.

[Anonymous]

Anonymous wrote:Yes it's true and it's as a result of what is called discrimination testing. Your only other avenue's are if your employer offers a high deductible health plan that allows a health savings account - that money is contributed pre-tax and whatever you don't use rolls over from year to year.

Also some companies also offer a supplemental deferred compensation plan. You can ask if they would consider implementing this. We have one, but the downside is that you have to take a payout when you leave the company, however it can be structured over 5, 10 or 15 years.

People, this is not the FSA I am speaking about.

Yes and yes. I took a huge tax hit when I left my last company because of the DCP.

[Anonymous]

The top heavy rules have been around since the early 80s. The point is to keep retirement plans from being for the exclusive benefit of the high earners at a firm. If it did, the plan would really just be a tax shelter for the most privileged employees. For example, if a law firm offered no match to its 401K so only partners participated. It just requires that you make sure there is a minimal benefit for lower paid employees. You can usually avoid the problem if the business offers a decent matching rate for lower paid employees.

[Anonymous]

Anonymous wrote:Thanks PP. My company does offer a high deductible plan but I have done math and prefer the PPO option given our expected medical expenses this year and next.

I am still trying to wrap my brain around the rationale for this rule. There is already a contribution ceiling per year to ensures the wealthy do not get a sizeable tax break or unfair advantage.

The "wealthy" are evil. Apparanly you are just getting the memo. Paying 48% of your income to taxes just isn't enough.

[Anonymous]

Your company should have a safe harbor plan. They could have done things to make sure this didn't happen but chose not to.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Thanks PP. My company does offer a high deductible plan but I have done math and prefer the PPO option given our expected medical expenses this year and next.

I am still trying to wrap my brain around the rationale for this rule. There is already a contribution ceiling per year to ensures the wealthy do not get a sizeable tax break or unfair advantage.

The "wealthy" are evil. Apparanly you are just getting the memo. Paying 48% of your income to taxes just isn't enough.

Vote democrat and get used to another 5-10% out the window.

[Anonymous]

Anonymous wrote:Your company should have a safe harbor plan. They could have done things to make sure this didn't happen but chose not to.

This. DH's company eliminated the match, which took them out of the safe harbor. Grrrrr.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Your company should have a safe harbor plan. They could have done things to make sure this didn't happen but chose not to.

This. DH's company eliminated the match, which took them out of the safe harbor. Grrrrr.

Jerks. I understand the point of this rule when it was implemetented BUT since the majority no longer have pensions and social security is being looted, this tax code needs to be repealed. Since we are told to fend for ourselves it shouldn't be on the employer to contribute a safe harbor match in order for those that can (and want to) max out their contributions.