3 ms·
What was your company's max contribution? Typically an X% of salary isn't unlimited, it's up to a certain cap. E.g. let's say you're a director making $1M/yr,
by CydeWeys 6y ago
What was your company's max contribution? Typically an X% of salary isn't unlimited, it's up to a certain cap. E.g. let's say you're a director making $1M/yr, they're not contributing $40k/yr to your 401k (this would very likely violate the IRS's 401k safe harbor rules).
- lvh 6y ago6% of compensation would still be a safe harbor plan, excluding the plan from ACP/ADP test requirements, so unfortunately it's quite possible that the director making ~$1MM annually in salary gets a ~$40k match (though not much more, because the total cap for 2021 is $58k, and that director is likely maxing out or close to maxing out, so $19.5k + $40k would cap them.)
- CydeWeys 6y agoI looked into this more and the IRS apparently sets an "Employee compensation limit for calculating contributions", which is currently $290k. So 4% of your salary on a match ends up being $11.6k, which is slightly better for highly compensated employees than the max $9.75k for a 50% match, but of course is significantly worse for people making way under $290k (i.e. most people). Also worth pointing out that the all-source IRS 401k contribution limit is currently $59k/yr, so even with an insane 500% no limit match or something that manages to pass the safe harbor test, there still is a limit you'll hit eventually. It's high though.
- lvh 6y agoAh, yes, you're right: I forgot about the contribution limit. Technically QNEC/QMAC can still be used to increase beyond that, because they're not computed off of compensation--but that wasn't your point.