401(k) max question Forum
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401(k) max question
I was just reading something about highly compensated employees having limits on 401(k) contributions. Do I have to worry about this? The HCE salary is 120k. Not sure how it all works, but everyone on here always talks about maxing contributions, so I don’t think I have to worry. But could someone please explain why?
My firm has two different plans, one for associates and one for partners/staff, I think,
My firm has two different plans, one for associates and one for partners/staff, I think,
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Re: 401(k) max question
This is a very easy topic to google. That said, unless you're living somewhere like New York, you should really try to put away the $18,500 maximum per year. They deduct this from your gross salary so the short-term hit on a net basis is more like $1k per month. As to why? Compounded returns.Anonymous User wrote:I was just reading something about highly compensated employees having limits on 401(k) contributions. Do I have to worry about this? The HCE salary is 120k. Not sure how it all works, but everyone on here always talks about maxing contributions, so I don’t think I have to worry. But could someone please explain why?
My firm has two different plans, one for associates and one for partners/staff, I think,
At a bare minimum, you should absolutely contribute any amount the employer is willing to match. That equates to a 100% return on investment, which would be a wild annual return in any market.
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Re: 401(k) max question
Agree with the above and I think maxing the 401k is the right decision even without employer match if you can afford to do this.
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Re: 401(k) max question
Think I should clarify my question.
I know how 401k generally works but read somewhere that HCE are limited to a certain %. How do all these associates max out then if they’re considered HCE? Do firms just give low-paid staff insane profit sharing to make up for the difference?
I know how 401k generally works but read somewhere that HCE are limited to a certain %. How do all these associates max out then if they’re considered HCE? Do firms just give low-paid staff insane profit sharing to make up for the difference?
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Re: 401(k) max question
I don't really understand the question, but I was able to put away $18,500 working at an investment bank making well in excess of that.Anonymous User wrote:Think I should clarify my question.
I know how 401k generally works but read somewhere that HCE are limited to a certain %. How do all these associates max out then if they’re considered HCE? Do firms just give low-paid staff insane profit sharing to make up for the difference?
Any percentage my employer communicated to me related to company match, which is discretionary.
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Re: 401(k) max question
I've never heard of this. The $18,500 limit is not linked to income. Are you thinking of the tax deduction phase-out for IRAs?
Anonymous User wrote:Think I should clarify my question.
I know how 401k generally works but read somewhere that HCE are limited to a certain %. How do all these associates max out then if they’re considered HCE? Do firms just give low-paid staff insane profit sharing to make up for the difference?
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Re: 401(k) max question
While you are correct that you are an HCE, that's only the first step of the analysis. So long as HCEs don't defer considerably more of their income than non-HCEs (specifics of the test are in the links below), your contributions are not limited. This is a plan-level compliance issue and your firm is, or should be, monitoring it. In the unlikely event that they mess this up, they'll return excess contributions to you.Anonymous User wrote:I was just reading something about highly compensated employees having limits on 401(k) contributions. Do I have to worry about this? The HCE salary is 120k. Not sure how it all works, but everyone on here always talks about maxing contributions, so I don’t think I have to worry. But could someone please explain why?
My firm has two different plans, one for associates and one for partners/staff, I think,
Note that in the case of your firm, associates are all part of the same plan and, assuming your firm pays market, every member of that plan is an HCE. This would seem to make it difficult to fail the tests.
https://www.irs.gov/retirement-plans/40 ... tion-tests
https://www.irs.gov/retirement-plans/pl ... efinitions
http://www.401khelpcenter.com/401k_educ ... rules.html