401k Max (rant)

[Brovane]

(rant on)
Who here is actually able to max out their 401k? I am not talking % I am talking the 17,500 dollar a year max. I haven't been able to get anywhere near the 401k dollar maximum for years now for my 401k because I am told by my HR I have been designated a "highly compensated employee" by the IRS so I can only contribute 6%. I have been tagged as this since 2005. As if making six figures in Southern California makes you highly compensated. No this isn't a brag thread. I just don't understand that all these website talk about retirement and maxing out your 401k, catch up contributions, etc, etc but leave out any discussion about having your contribution % limited by being designated a "highly compensated employee".
(rant off)

 

[highland145]

Uncle Sam needs your tax $$ now. Not when you retire or when the market crashes and you lose everything.

 

[rcpratt]

Interesting...I didn't even know about this rule. It sounds like your company has so many HCEs ($115k+) that HCE contributions are limited by non-HCE contributions. Not too surprised for SoCal...

Does your company utilize an employer match? Or are there just a ton of people at the "senior" level?

I don't understand why they don't adjust these limits for COL.

 

[rsbennett00]

It's all BS and probably a scam. Supposedly this year tiaa-cref lost half of my total to bad investments. I've just given up.

 

[jaedaliu]

Interesting...I didn't even know about this rule. It sounds like your company has so many HCEs ($115k+) that HCE contributions are limited by non-HCE contributions. Not too surprised for SoCal...

Does your company utilize an employer match? Or are there just a ton of people at the "senior" level?

I don't understand why they don't adjust these limits for COL.

My understanding of HCE is the discrepancy between the high earners and low earners at your company is too big.

It's no big deal, just invest on your own. Your company sponsored 401(k) isn't your only way of saving money for retirement.

 

[DesiPower]

yup, in US you will be punished if you are hard working upper middle class worker, that's not a news.

 

[Brovane]

Interesting...I didn't even know about this rule. It sounds like your company has so many HCEs ($115k+) that HCE contributions are limited by non-HCE contributions. Not too surprised for SoCal...

Does your company utilize an employer match? Or are there just a ton of people at the "senior" level?

I don't understand why they don't adjust these limits for COL.

We have a employer match of 1/2 up to 6% contribution. However we also have a Pension plan on top of 401k, so maybe a lot of people don't contributed to the 401k. We are a nationwide company with 20k+ employees. Our corporate HQ is on the east coast. From my reading it looks their is couple of different ways to deal with this. Apparently my employer has decided to go with the easiest method which is just limit all HCE up to 6% of pay. I can do something which is called deffered compensation. I can designate up to 9% of my compensation as deffered and it goes into a special fund that earns a set % that I get back when I leave the company. However unlike a 401k the money isn't actually mine until I leave. So if the company went under it would just be general un-secured debt. Just really annoying but I have some work arounds.

 

[KB]

It's all BS and probably a scam. Supposedly this year tiaa-cref lost half of my total to bad investments. I've just given up.

Something tells me you weren't invested in an S&P index fund. Did you have everything in a gold fund?

 

[vi edit]

My wife has been in that situation for 10 years. She was only able to put in around 10% before she hit the High Income Earner watermark on her 401k. She had coworkers that had checks sent back to them for $10,000 or more that they owed taxes on because of the rule.

Not only are you punished for making too much money. You are doubly punished for trying to save it. It's bullshit.

 

[Brovane]

My wife has been in that situation for 10 years. She was only able to put in around 10% before she hit the High Income Earner watermark on her 401k. She had coworkers that had checks sent back to them for $10,000 or more that they owed taxes on because of the rule.

Not only are you punished for making too much money. You are doubly punished for trying to save it. It's bullshit.

Yet somehow Romney gets a 100+ Million into a IRA. :whiste:

Irritates me when I see these articles talking about 401k limits being raised and how nice it is. Who can actually take advantage of that? It would seem that as soon as you start making enough money to take advantage of this new 401k limits you get hit with the "highly compensated employee" designation.

 

[Scarpozzi]

Do they do a 457 plan? (Income deferral) It's essentially the same thing.

My wife has hers maxed because they don't have a pension system like I have....of course, mine's not a traditional pension, it's really a 401a.

 

[Brovane]

Do they do a 457 plan? (Income deferral) It's essentially the same thing.

Yeah they call it a restoration plan. It is basically income deferral and you get a set % return.

 

[Scarpozzi]

Yeah they call it a restoration plan. It is basically income deferral and you get a set % return.

Well...there you go.... You may not see the same gains, but you could count that as lower risk money if the returns are set and still claim the tax savings now, if nothing else.

It's an option.

 

[Brovane]

Well...there you go.... You may not see the same gains, but you could count that as lower risk money if the returns are set and still claim the tax savings now, if nothing else.

It's an option.

That is what I have been doing. The only thing that makes me un-easy is that the money is essentially un-secured debt for my employer. So if my employer goes under I could potentially loose the deferrend income. Not saying it is going to happen but it feels different for me compared to my 401k money which is in my name. I am probably being to paranoid. The guaranteed returns are nice.

 

[CPA]

We have a employer match of 1/2 up to 6% contribution. However we also have a Pension plan on top of 401k, so maybe a lot of people don't contributed to the 401k. We are a nationwide company with 20k+ employees. Our corporate HQ is on the east coast. From my reading it looks their is couple of different ways to deal with this. Apparently my employer has decided to go with the easiest method which is just limit all HCE up to 6% of pay. I can do something which is called deffered compensation. I can designate up to 9% of my compensation as deffered and it goes into a special fund that earns a set % that I get back when I leave the company. However unlike a 401k the money isn't actually mine until I leave. So if the company went under it would just be general un-secured debt. Just really annoying but I have some work arounds.

I was going to ask if you have a deferred comp plan.

Here is the problem with your company's 401K plan and why they need to limit you: They will fail their non-discrimination testing if they allow to contribute more than 6% and/or won't increase their match to satisfy "safe harbor" rules.

Basically, your non-key, or non-highly compensated employees, are not contributing enough to the company's 401K plan. That's most likely due to the pension. If non-highly compensated employees don't contribute enough, then your company is limited to how much highly-compensated employees are allowed to contribute. Usually, it's a 2% spread. Guess what, your considered a highly-compensated employee at your company

Here's a good breakdown of how the rules work.

My company has the opposite issue. We have no minimums, up to 25%, on the contribution percentage, because we satisfy the "safe harbor" rules. So, many highly-compensated employees reach the $17,500 (to be $18K in 2015) limit well before the end of the year. Well, because they met the limit before year-end, they are theoretically not able to continue to receive the company match as they are not contributing. Well, this is also in violation of discrimination rules. So, the company must continue to provide them the match component (called a "top-up") even though they are no longer contributing.

 

[Drako]

Thankfully I don't work for a company like that.

I've been doing the catchup thing as well for the last several years, so 23K this year.

 

[Engineer]

I worked a lot of paid overtime in the mid 2000's and was hit with this for 3 consecutive years. Didn't matter that I worked up to 3,500 hours per year to get to that amount. Really pissed me off.

 

[Engineer]

Thankfully I don't work for a company like that.

I've been doing the catchup thing as well for the last several years, so 23K this year.

Doesn't matter who you work for. It's an IRS rule that you can't make over a certain amount of money or you will be considered highly compensated. You are then limited just like you are an executive of the company, even if you are just a damn janitor who worked tons of overtime (just an example).

 

[Drako]

Doesn't matter who you work for. It's an IRS rule that you can't make over a certain amount of money or you will be considered highly compensated. You are then limited just like you are an executive of the company, even if you are just a damn janitor who worked tons of overtime (just an example).

It does matter who you work for.

My company only employs what are called "highly compensated". :biggrin:

 

[manimal]

twirl of the moustachio to OP for labeling his rant thread properly!


Good show ol boy

 

[IronWing]

OP, you have to convince the great unwashed to contribute more to the 401k plan. Maybe your company can sweeten the match. My experience is that you can't even lead the horse to water. We sat down and showed employees that if they contributed, got the match, and then immediately cashed out, paying the penalty, they would still come out ahead. Some employees just saw the 401k as a way the company was trying to "steal their money". Note that this plan did not invest any 401k funds in company stock.

 

[CPA]

Doesn't matter who you work for. It's an IRS rule that you can't make over a certain amount of money or you will be considered highly compensated. You are then limited just like you are an executive of the company, even if you are just a damn janitor who worked tons of overtime (just an example).

Yes, all employees are limited to the cap. But, they are not limited to something less than that if the company satisfies one of the safe harbor rules. In order to do that, though, they company has to contribute more match.

 

[WhoBeDaPlaya]

I only contribute enough to max out my company match.

 

[Jeff7]

yup, in US you will be punished if you are hard working upper middle class worker, that's not a news.

Oh the horrible burdens of those who have had good fortune and opportunity.
So it goes with progressive taxation scales that have discrete brackets, rather than a nice and continuous equation.



And I remember working retail, where $17,500/year would have been referring to gross annual wages.

 

[Exterous]

Who here is actually able to max out their 401k? I am not talking % I am talking the 17,500 dollar a year max.

It's $18,000 next year

And I did. First year for that though

However we also have a Pension plan on top of 401k

The pension plus the fact that a lot of people just don't sign up for 401k contributions are probably the reason. Our company harps on 401k contributions a lot so I believe this leads to a higher than average 401k participation letting us avoid the cap issues