401k Contribution

Frequently Asked Questions

1. QUESTION:
   401K Contribution?
   How much do you have taken out of your check for 401K?
   Does the company you work for currently match that contribution? The company I work for will match up to 3% and then and then up to 5% they will contribute 1/2. I just have the 3% held out of my check every week. I’m 26. Should I have more taken out? What should I do?

   I’m young and I don’t know a lot about this. I figured since I won’t be able to retire for about 50 more years that I will be good with the 3% for a while…..Please give me any info you can in lamens terms.
   100% match up to 3%
   50% on up to 5% is that clearer…..sorry if this is confusing.

   • ANSWER:
     On the 3% you contribute you are getting 100% return on your contribution, plus any intrest or dividends. If you were to contribute 2 more percent you will instantly recieve 50% return on your investment,plus intrest and dividends. It is crazy not to take all of the “free” money you can get your hands on. Think about it, if I told you to give me 100 dollars and I would immeaditly return 150 dollars to you, would you pass that up? Save all you can while you can. If you change jobs, you can roll that money over into an IRA. I am 50 years old and the only money I really saved was what was taken out in my 401k. I am happy that I did so when I was young or I would really be dreading the next 10-15 years.

2. QUESTION:
   If the 2011 401k contribution limit is 500, does that apply to my employer contribution as well?
   If the 2011 401k contribution limit is 500, does that apply to my employer contribution as well? Am I allowed to put in 16500 which is at the limit and then my employer adds in 5000 as an example? Or am I supposed to take my contribution and add my employers contribution and the combined total must be under ,500? Thanks in advance for the answers.

   • ANSWER:

3. QUESTION:
   How can I lower my income for Roth IRA qualification by increasing my 401k contribution?
   I participate in a 401k up to the point of employer match, and each year I’ve been making out the roth contribution. My income for 2007 will exceed the uppoer limit to qualify me for contributing to a roth. Can I meet the restricions by increasing my pre-tax 401k, even though it will be unmatched?

   • ANSWER:
     Good Question. In 2006 you can contribute 000 to your 401k regardless on employer match. If your over 50 years old you can contribute an addional 00. All those contributions will lower your marginal tax rate. Therefore you could reduce your income in regard to ROTH IRA limits. You should check with your CPA first. If you are over the limit for Roth contribution you will get hit with penalties from the IRS. Another option is the ROTH 401K. Ask your employer if that is an option. You can put in 000 per year with no income limit. You can email me on this subject if you have more questions.

4. QUESTION:
   If I increase my 401k contribution can I make more money?
   I currently contribute on a weekly basis to my 401k plan thru my job. In March, I was given my bi-annual raise of .50/hr. At full time, this calculates out to an additional 400.00/mo (pre-tax). However, this raise bumped me up into a new tax bracket so I am only seeing an additional .00/mo. Since my 401k plan is pre-tax dollars, I am curious as to if I increase my contribution to my 401k (to drop myself out of the higher tax bracket) will my paycheck increase? If so, is there a site that would help me calculate what changes I need to make?
   I don’t have many deductions, other than the standard benefits, which is not much considering I am single. I am listed as single claiming 0 dependents.

   • ANSWER:
     That is incredible. 400/mo pretax equates to 40/ mo after taxes. Are you single? I don’t think it is possible to increase your take home pay by contributing more to your 401k, but I certainly could be wrong on that point. However, if you choose wisely among your investment options in your 401k, you certainly will make more money by contributing more. Remember your 401k earns money tax deferred.

     This may help you. Give it a try.

     http://finance.yahoo.com/calculator/career-work/pay-02;_ylt=Ar9I2xwfYNlIS8wByU5Y3XIomNIF

5. QUESTION:
   Is the Roth 401k contribution limit pretax or after tax?
   I understand the contribution limit for any type of 401k is ,500 per year. I am wondering if this is on a pretax or after tax basis for the Roth 401k.

   If the limit is after tax, then technically you can contribute significantly more to your account. You would be able to contribute ,385 of your paycheck to your Roth 401k, have it be taxed at 35% to bring it down to ,500. Is this the case? Or can you only contribute 16,500 of your paycheck?

   • ANSWER:
     Wow MJM’s math is completely wrong especially for all those great sources he mentions. Let’s try this again.
     Roth –
     ,385 – taxes (35% from the question) = ,500 (approximately) then 4x growth = ,000 in your pocket
     Traditional
     ,385 goes in then 4x growth = 1,540 – taxes (35%) = ,000 (approx.)
     They come out the exact same. The difference is where will taxes go during this time frame. With a traditional 401k you take on the risk of taxes going up.
     As a side note matching in a Roth 401k goes into a traditional 401k account so the matching is a pre-tax contribution.

     I do want to commend you on the question though because you do catch on to the difference here. The Roth essentially allows you put a lot more money in a tax qualified account than the traditional does. Oh and to answer your question the Roth contribution is after tax. Please let me know if you have any other questions.

6. QUESTION:
   What resourses are available to figure how much of a 401k contribution it would take to replace a pension plan
   What resourses are available to figure how much of a 401k contribution from the company it would take to replace a defined benefit pension plan ?

   • ANSWER:
     In other words, you want to know how much is the stream of payments worth today in a lump sum. This is a really simple calculator that can tell you what that stream of payments is worth as a lump sum.

     http://www.deseretfirstcu.org/calc/pvannuity.asp

     The two main variables are, what interest rate is the company using and how long is the stream of payments? If the stream of payments was going to be for lifetime, you would have to know what age their actuarials came up with for their calculation.

     I hope this helps. Good luck.

7. QUESTION:
   Year End Deadline for Participant Contribution to Company Sponsored 401k Plan?
   For tax purposes, what is the deadline for a year end participant contribution to be deposited in a company 401k plan?

   Also, what determines the date that a 401k contribution made by the participant and deducted from my bonus check was “effective” for tax purposes? Is it:

   1. 12/28/06 which is the date that the bonus check was issued (net of the 401k contribution I requested to be made),

   2. 1/3/07 which is the date when my employer actually wrote the check to make the contribution, or

   3. Some other date?

   • ANSWER:
     The 401K contribution will reduce box 1 of your 2006 W-2. It is a 2006 contribution since it was withheld from your 2006 income.
     Your employer actually has until the 15th business day of January 2007 to make the deposit into your 401K investment account.

8. QUESTION:
   Tax Pros please – Can I do both? 401k contribution and a tax deductable IRA contribution for 2006 tax year?
   I really need a definitive answer. In 2006, I contributed to my company sponsored 401k plan. Can I also make a tax deductible contribution to my IRA in the same year? On my w-2, I have a checked box under “Retirement Plan.” Does it make a difference in tax deductibility if I contribute to a traditional or Roth IRA? Thanks for your help!

   • ANSWER:
     1) Maybe. If you are single and you make under k, you should be able to do a deductible traditional IRA. If you make over k and are single, you can not. If you make between k and k, the 00 IRA limit is reduced.

     2) Only traditional IRAs are deductible. Roths are not.

9. QUESTION:
   is there a 401k contribution worksheet for plan administrators to help manage plan?
   We now offer 401k and I’m the lucky person who gets to manage the plan. I have set up my employee’s 401k deductions successfully in QuickBooks but now wonder how to calculate the employer’s contribution amount. We match 100% up to the first 3% of an employee’s annual salary and then 50% for deferrals between 3%-5%.

   There has to be an online resource/spreadsheet/SOMETHING to help me easily calculate these amount.

   Thanks

   • ANSWER:
     Quickbooks should also be able to calculate the match. It’s a basic safeharbor matching formula that is based allows for “catchup” matches….but here’s the formula in excel:

     Column A = YTD Compensation as defined in plan document
     Column B = YTD Deferral (401k deductions)
     Column C = YTD Match (formula below)

     =IF(B2/A2<=0.03,(MIN(ROUND(0.0
     3*A2,2),B2)),IF(B2/A2>=0.05,
     ROUND(0.04*A2,2),ROUND(
     ((B2-0.03*A2)*0.5)+(0.03*A2)
     ,2)))

     This all goes in once cell…

     Column D = Prior Match (last pay periods Column C)
     Column E = Current Match (Coulmn D – Column D)

     Just keep a running total and you should be fine.

     keep in mind that if your plan is not a safe harbor plan (100% vested in match immediately) then you don’t want to make the contribution each payroll because you’ll be giving a match to those who may not ultimately be entitled to it (if they leave before end of year). If that’s the case then use the formula above without the Column D and E and calculate the match after the last payperiod.

     btw there is far more to adminstering a plan than calculating a match – there is also discrimination testing, plan tax filings, statement preparation, notice preparation, and document upkeep. If you haven’t already-you may want to consult a TPA and see if they can do this for you at a reasonable rate. Shouldn’t cost more than 00 a year and relieves a lot of headaches.

10. QUESTION:
    Is there some kind of calculator that shows how much your paycheck will shrink after 401K contribution?
    I’d like to donate as much as possible to my 401k and have my paycheck shrink the least. Since 401K Contributions aren’t taxed, how would i figure out what percentage that would be? Should i just go to a paycheck calculator and deduct different percentages from my before-tax salary until I reach a paycheck amount i feel comfortable with?

    • ANSWER:
      It depends upon your federal marginal tax rate (how much more tax you pay for every extra dollar earned). For example a 0 contribution would reduce your paycheck if in 15% bracket, or only less in 25% tax bracket.

      Or if you contribute enough for the year, it might keep or reduce other income to a lower tax bracket.

      The higher your tax bracket, the less a 401(k) contribution affects your paycheck. But there is also a saver’s credit if you contribute below a certain income http://www.irs.gov/newsroom/article/0,,id=200742,00.html

11. QUESTION:
    Do I deduct my employers 401K match contribution from my wages to reduce my taxable income, as well as my own?
    I know that my 401K contributions will lower my taxable income, but can I add my employers match as well? Is that treated as income to me as when I take it out I’m taxed on it? Is that provided on some type of form or W2 come tax time?

    • ANSWER:
      No..you don’t get to deduct the employer’s portion – that will be income at the other end when you begin to withdraw from the 401(k) and you will be taxed at that point.

12. QUESTION:
    change tax withholding to increase 401k contribution?
    Hello,
    I’d like to learn how to change my tax withholding so that I can increase my 401k contribution without seeing a change in my net income.

    Thanks, in advance, for your help.

    • ANSWER:
      Your net income is the amount of $ you make minus 401k minus taxes owed.

      If you change your withholding, your tax owed doesn’t change. It just may not get withheld from your check. You will either cut into your tax return, or end up owing tax at the end of the year.

      If you want to increase your net income by reducing your tax lability, the only way to do this is to write your senators and congresspeople and tell them to cut your taxes!

13. QUESTION:
    If I make a lump-sum contribution to my 401K, can I deduct the amount from my taxable income (2007 return)?
    I basically have not done my pre-tax 401k contributions this year(out of my paycheck) and now want to do a lump sum contirbution(before the end of the year) … can I still get the tax benifits ??? THANKS !!!

    • ANSWER:
      If your employer’s plan allows you to make lump-sum contributions, yes you could deduct it unless they show it on your W-2 as already deducted. But most plans just work on payroll deductions, not lump sum contributions. Ask your HR department or your employer.

14. QUESTION:
    Should i change my 401K contribution due to the possible recession?
    Currently i am contributing to my 401K with very aggressive investments since retirment is still 25+ years away for me.
    With all of this talk of a recession, would it be wise to not be so aggressive in my investments for a while?

    • ANSWER:
      Not necessarily. No one can time the market. You’ve already lost some money because you missed the top of the market and you’ll probably miss some gains later because you won’t be able to time the bottom either.

      If you have a 25 year time horizon, you can actually make money by continuing to buy when prices go down. You’ll be getting more shares of your funds for the same amount of money. (This is called “dollar cost averaging” because it reduces your overall cost of your shares.) When the market recovers, you will have a greater number of shares increasing in value. I bought funds agressively after the stock market crash in 1987 (when many people that it was insane) and I profited handsomely from it.

      By trying to time the market, you risk selling when the market is low and buying back in when it’s high. That’s exactly the opposite of how you make money.

15. QUESTION:
    Is there a % limit to what employers can match on an employee’s 401k deferred contribution?
    Can employers only match up to 6% of an employee’s 401k deferred contribution?

    • ANSWER:
      yes that is the max

16. QUESTION:
    Employer tax deduction on a 401k contribution?
    What percent tax deduction does an employer get for contributing money to an employees 401k? Thanks.
    Is there a percent range that most companies fall into? Or a graph or table that I can look at to try and see what deduction the employer would get?

    • ANSWER:
      If your tax bracket is 15% and you put ,000 in as a match for your employee, you would save 0 in taxes.

      Helen, EA in PA

17. QUESTION:
    Is it ok to lower my 401k contribution if I am saving for a house?
    I am currently contributing 15% to my 401(k). However, I would like this lease I sign to be the last lease I sign. Should I lower my contribution to 10% so I have more income to save this year so I can afford a down payment next year? If I do that, I should be able to afford a 15% downpayment, rather than 10%.

    • ANSWER:
      You didn’t say how old you are.

      However, I WOULD NOT lower the 401k amount. Even a little amount over the long hull will hurt you.

      Lets assume you make 75,000 a year. You put in 15% or 11250 a year (TAX FREE). You lower this amount to 7500 for 3 years and then increase again to 11250 a yr. At the end of 25 years, you LOST 2,000 income!

      It doesn’t make sense. I would put the 10% down and do it this way.

      ALWAYS fund your 401K plan FIRST and ALWAYS to the MAX.

18. QUESTION:
    how much does your company match in 401k contribution?
    that is what percentage of your salary do they pay as a 401k benefit?

    • ANSWER:
      They give up to 10% maximum for my 4% matching contribution.

19. QUESTION:
    Is a Safe Harbor 401k matching contribution to a shareholder of an S-Corp a K-1 add back item?
    If an S-Corp pays matching contributions to a shareholder as part of a Safe Harbor 401k plan, does the shareholder get the benefit of the deductable expense or is it a k-1 add back item?

    • ANSWER:
      I’ve searched Revenue Ruling 91-26 and Publication 15B and can find no mention of a matching 401k contribution listed as a fringe benefit.

      The matching contribution is a deduction for the S Corporation and not taxable income to the shareholder.

      The only item to report to the shareholder is the reduction of gross wages on the W2 and the entry in box 12 of the W2.

20. QUESTION:
    IRA or 401K with no employer contribution?
    Is an IRA better investment option if my employer does not match 401k contributions? Also, the funds avaialble through my 401k are not that great in terms of returns. Would it be better to go with an IRA? If yes, which IRA would be best – Traditional or Roth? Thanks for your time.

    • ANSWER:
      Take the IRA option, if there are no matching funds for the 401K. It will allow greater freedom of where to invest your money. If bonus monies or special stock shares or something go into the 401k set that up, but put minimal input into it.

      Traditional IRA is tax deferred, so you get the benefit of not paying taxes on the money, currently. Roth has no penalties if you need access to the money at some point down the line for emergencies or something.

21. QUESTION:
    should annual pay raise include 401k contribution and medical so I only get 25 more per week?
    I am a legal secretary working for 2 lawyers. They gave me total of 5% increase which includes medical (they pay 100%) and 401k (they will match certain percent) but i am only getting 1300 actual increase which is nothing. My rent is going up 8% over 2 years.

    • ANSWER:
      Actually, a 5% increase with 100% medical and matching 401k is very good. There are very few employers who are giving those kind of benefits.

22. QUESTION:
    Can I deduct 401k contribution from the taxable income in 1040 form (box 32-IRA contribution)?
    This is my first year I participated in my employer sponsered 401k plan. I do not know how to report my 401 contribution in my tax return. Is 401k and IRA same in the tax deduction section of 1040 form (Box 32)? Is my w2 income (box1) includes the amount I contributed in 401k plan? .. help please..

    • ANSWER:
      The 401 K Contribution should have already been backed out of your federal wages on your W-2. To check, this is a simple trick. Look at box 1 of your federal wages. It should be different than the state wages on your W-2. Is the difference your 401 K Contribution? If it is, don’t sweat it. It’s already backed out of your federal wages on your W-2. Email me with further questions if you want

23. QUESTION:
    Does my Modified Adjusted Gross Income become lower if I increase my 401k contribution?
    Im trying to figure out if my 401k deductions will reduce my MAGI? Im just over the amount to get a tax credit, and Im wondering if I increase my 401k to 15% will it reduce my modified adjusted gross income.

    • ANSWER:
      AGI is a general amount that is used to determine if certain tax advantages apply on a given tax return, so 401 K contributions will decrease AGI.

      However, MAGI is a term that means a different thing in each context. If MAGI in your case is about qualifying for the “Saver’s Credit” (form 8880) then, no, it does not reduce your MAGI.

      However, for any other purpose involving a MAGI calc. it would help.

24. QUESTION:
    401K catch up contributions, can I use savings rather than current year earned income to make the contribution?
    I am maxing out the employee allowable contribution but I still don’t max out the IRS allowable contribution. Can I move savings into 401K and lower my taxable income?

    • ANSWER:
      Yes. It is not uncommon for people to put the money they intend to go to their 401(k) into a regular savings account and then make one single contribution to the 401(k) at the end of the year by moving it from their savings to their 401(k).

      You cannot contribute more to your 401(k) than you have earned during the year, but you can contribute up to your 401(k) contribution maximum so long as it is not more than 100% of your annual earnings.

25. QUESTION:
    Why are annual IRA contribution limits so much lower than 401k contribution limits?
    It seems odd that those with 401ks are able to contribute so much more annually than those with IRAs. Why are the maximum contributions for each so different?

    • ANSWER:
      That is a GOOD question. I do not know the answer. The reasons given by the 1st 2 responders are incorrect. I do know that. My hypothesis is this. The original IRA account called the traditional, predated the 401k by quite a few years. The contribution limit was set at that time. The 401k came later under a different law. There was no company backing for the IRA since companies had no involvment but there was for the 401k since that law left companies off the hook for pension contributions in a manner of speaking. Therefore, I might presume that companies lobbied congress for a large contribution for their employees.

26. QUESTION:
    Should I cancel my 401k contribution to afford bigger home?
    I’m currently investing about 0 per month into my 401k. I could really use that money for bigger home mortgage. Would it be a bad idea to cancel my savings so that I can afford a nicer place?

    Thanks

    • ANSWER:
      that really depends on if you think that the appreciation on the house will be higher than the appreciation in your 401k. History says it won’t be….

      Now, if you think history has changed and you’ll earn more….and you’re right. You’ll have a house that you have paid off, that’s worth a lot of money and that you have to sell to reap the benefits of it. You’ll also be hoping that tax law remains the same and you’ll get to exclude the gains from the sale. Could be very lucrative switch even though you’ll have to sell and buy down on your house.

      But, if you’re wrong…you’ll have to sell anyways though at a much lower gain then you’d hoped. And again, if tax law changes you could get taxed at that years capital gains rate (banking on capital gains remaining lower than regular income rates are we?).

      Now…if you leave the money in the 401k and live in a somewhat lessor home…you’ll still have a good source of income AND you won’t have to sell your home to get it. Ideally the home will be paid off so you won’t have THAT expense. Yes, you may have to pay taxes on the distributions from your 401k but you can manage your tax bill there.

      Given the flexibility that the 401k provides, the history of better performance, the ability to take the distribution in pieces, and the fact that you will still own a home in which to live tells me that it’s not a good idea.

      The only time I advocate reducing your 401k is if it’s your only option in terms of paying off debt. Never to purchase something new. And only to pay off something old if you have no other means of doing so and bankruptcy is in your future.

27. QUESTION:
    How long can my employer hold my 401K contribution before actually remitting it to the fund?

    • ANSWER:
      Deferrals must be deposited as of the earliest date that the deferrals can reasonably be segregated from the employer’s general assets. (No later than the 15 days after the end of the month during which the amount was withheld.)

28. QUESTION:
    If I open a Solo 410K and a Roth 401K, are the contribution limits separate or combined?
    I am self-employed and have a SEP IRA. I am thinking of opening a Solo 401K and a Roth 401K. I want to convert the SEP into the Solo 401K. When I’m done I can reduce my taxable income with the Solo 401K and can have the Roth for tax free withdrawals at retirement. Are the contribution limits separate or combined for these 2 401K accounts?

    • ANSWER:
      All 401k contributions must be treated as one big contribution just as IRA accounts do. You can have many 401k accounts, but all your contributions must be added together.

      The maximum contribution to 401k is ,500.
      The maximum contribution to IRA is 00 (00 if you are 50 years old or older). The amount you can contribute to IRA could be reduced if you earn too much income. IRS publication 590 goes into full details on how much you can contribute into Traditional IRA or Roth IRA.

29. QUESTION:
    It normally takes my company more than 2 weeks to post my 401k contribution to my account. Is this normal?
    Where is my money being held during this time? Does not seem right. My last company posted contributions within 2-3 days. Please advise. Thanks.

    • ANSWER:
      The legal requirement is that the funds you contribute must be deposited with the custodian not later than 15 business days (i.e., 3 weeks) after the end of the month in which the contributions were withheld from your salary. Some employers do it sooner.

30. QUESTION:
    Made contribution to traditional IRA, Roth IRA and 401K. What do I now do with traditional IRA?
    My financial advisor told me I could make traditional IRA contribution even though I am making 401k contribution. In 2003, I opened IRA and Roth IRA both. I DID NOT take tax deduction for traditional IRA. I have only lost money in my traditional IRA account. Now I understand that I shouldn’t have made traditional IRA contribution when I had maxed out in 401k. What do I do?

    • ANSWER:
      My idea would be to sell out your traditional ira and put the remaining into your roth ira. You should be talking to your financial advisor about all this. He or She should know all this and be able to guide you what to do. if not, time to get a new Financial advisor. But, at least check out this site which I pulled for you while doing my own research. It looks like it nails it on the head of what your asking about. Read it thoroughly and take it in, then talk to your financial advisor and go from there. Hope I was of some help to you. Good luck! Shuuutnstr =o)

      http://www.bankrate.com/brm/itax/news/taxguide/20060102e1.asp

31. QUESTION:
    How long does my employer have to deposit their contribution into my 401k?
    My employer deposits their contribution into my 401k once per year. They deposited their portion from 2007 into my account Feb 2008. They still have not contributed their portion from 2008. Is there a time limit?

    • ANSWER:
      nope. company matches are generally voluntary so they do not have to ever do it. maybe there’s no money right now.

32. QUESTION:
    For an LLC taxed as an S.P. does rental income pass through, and can I use that for my 401k contribution calc?
    I am interested in moving my rental properties to an LLC for several legal reasons. When I do so, will the favorable tax treatment afforded to rental income pass through the LLC to me? If so, will I still be able to count this toward income when I calculate how much I can contribute to a solo 401(k)?

    If you can answer this question, you are truly a tax ninja.
    Holy Tax Ninja’s Batman!

    Is there a way to recharacterize rental income from an LLC as earned income for retirement purposes? For example, by paying myself from the LLC? Or do I have to be a “real estate professional” to do that?

    • ANSWER:
      No, it won’t have any impact on your 401(k). Income passes through the LLC in the same characterization as if the LLC did not exist. Rental income isn’t earned income and therefore isn’t eligible for contributions to a 401(k).

33. QUESTION:
    Increase 401k contribution or put it in an IRA?
    Is there any real difference besides the ability to have more control over my investments with an IRA?

    • ANSWER:
      Does your company do a match on your 401K? If so, max that contribution out first then do an IRA..consider a Roth IRA…not tax deductible now, but it will save you TONS of money when you retire.

34. QUESTION:
    How does employer 401k contribution maching work?

    • ANSWER:
      The other answer is correct about matching plans, but is missing an important point.

      Typically, your employer will match a portion of your contribution. For example, you put 6% of your pre-tax salary into your 401k, and your employer matches 50% (3% of your pay). There is usually a limit to the amount they will match. For example, they could match 100% of your contribution up to 6% of your salary. This is free money…sort of.

      Most 401k plans with matching have a “vesting schedule”. Vesting means the money is yours to keep. The most common vesting schedule is 20% per year for 5 years. This means after your first year of contributing to your 401k you will “own” 20% of the company’s matching contributions. If you leave the company (for any reason), you can take your 401k with you, but only the vested amount. The money you put in is always 100% vested, you have already earned it.

      A 401k with company matching is always a good idea. It is a pre-tax investment, so it takes less out of your paycheck. (If you are in the 25% tax bracket, a contribution reduces your paycheck by only .50). The matching amount is free money (A 50% match is like getting a 50% return, an amount that most investors would die for!).

      Just keep in mind about the vesting schedule. If you leave the company prior to being fully vested, you won’t get to keep whatever company amount you are not vested in.

      Hope this helps.

35. QUESTION:
    I have a 401K plan at work. It gives me the option to select contribution percentages for both?
    PRE-tax and AFTER-tax dollars.

    If I contribute $$ using AFTER-tax dollars, would that have the same principals as the ROTH IRA or other ROTH plans in general?

    Would my AFTER-tax contributions into my 401K plan grow tax free and also be TAX free when I go to withdraw it?

    Thank you.

    • ANSWER:
      No. Any AFTER tax contributions to a 401k or traditional IRA are taxable at time of withdrawal the same as pre-tax contributions. You can’t get two different tax treatments in the same account. The benefit is that dividends and capital gains distributions are tax exempt while the funds are still in the account. So no tax bill at the end of the year.

36. QUESTION:
    What is the maximum yearly contribution to 401k plans?
    The limit for a Traditional 401k is ,500/year, and the limit for a ROTH 401k is 00/year. However, this year I put 00 in my Traditional, and 00 in my ROTH 401K, and Turbotax says I am over my legal limit. There seems to be a conflict in the tax code, so I must be misunderstanding something. Even my payroller and retirement account company are confused.

    • ANSWER:
      you are entering in your 3000 into Turbo Tax and you shouldn’t. The 401k deduction is already accounted for in your net income. If you look at your w-2 you’ll see that the social security income is at least ,000 higher than the taxable amount. The difference is your 3k traditional 401k contribution.

      Little confused when you say k limit for Roth 401k. That’s not true…the k limit is for all IRA’s not 401k’s. The limit for 401k’s is .5k and can be split any way between ROTH and Traditional. Either way it’s all accounted for in the w-2 and shouldn’t be entered into TurboTax at all.

37. QUESTION:
    Increase Federal witholding to increase 401K contribution?
    Hello. I am trying to decide if it’s in fact a smart idea to increase my federal withholdings on my W-4 to, say, 3 or 4, (I am single so it should be 1) and use the extra money to contribute to my 401K which is tax deductible at the end of the year. I usually get around ,000 in refund each year.

    Thanks,

    • ANSWER:

38. QUESTION:
    What is the maximum amount for 401k contribution for 2009?

    • ANSWER:
      ,500 according to the IRS.

      http://www.irs.gov/retirement/participant/article/0,,id=151786,00.html

39. QUESTION:
    What’s the 401k contribution limit each year for year 1995 through 2001?

    • ANSWER:
      “Subject to the 25% limit and not counting the catch-up contribution allowance, here are the figures:

      2006 ,000
      2005 ,000
      2004 ,000
      2003 ,000
      2002 ,000
      2001 ,500
      2000 ,500
      1999 ,000
      1998 ,000
      1997 $ 9,500
      1996 $ 9,500
      1995 $ 9,240″

      This is from the link below.

40. QUESTION:
    Can I dump savings into a new 401k to boost my company contribution?
    I qualify for my company’s matching contribution in November and am wondering if it’s possible to dump some of my savings into the 401k initially as a means of increasing the amount of money I get from my company. I’m under 50, so I know I don’t qualify for the “catch up” contribution. Thanks for all answers!

    • ANSWER:
      It depends. It’s possible to get the savings in there by changing your deferral percentage to 100%. However, the match is based upon your eligible compensation multiplied by the matching percentage. They then compare that result with your own contributions and take the lessor amount. So, while you may be able to jack up your own contributions, you’re still limited to the calculated contribution amount. This is determined by the eligible compensation variable. Most plans limit compensation to only compensation earned while eligible. For you that would be compensation earned during November and December. Now, if your plan document has no such limitation???? Then yes, you can front load and maximize a match using your entire years compensation.

      works like this…

      Jan – Oct Comp = 10,000
      Nov – Dec Comp = 2,000
      Match =100% up to 6% of eligible comp.

      Eligible comp calc’d only on comp earned while eligible = 6% of 2000 or 120. So anything contributed over 0 is unmatched.

      Eligible comp = annual compensation with no limitation = 6% of 12,000 or 0.

      That being said, I’ve only seen 1 plan in 15 years that didn’t have the limitation and that plan was mostly family of owner of company.

      Check your plan document to see what it says.

41. QUESTION:
    Is it fair that my pay raise include medical and 401k contribution?

    • ANSWER:

42. QUESTION:
    Contribution limits for 401K and 403B combined – for two incomes family?
    If a married couple has seperate 401K and 403B retirement accounts offered by their employers – what are the respective (combined) contribution limits ? Is it ,500 each or double this amount ?

    Thanks.

    • ANSWER:
      The 401k and 403b limits are per employee, not combined for a married couple.

      Limits for 2007 are ,500 each for those under 50, or ,500 if you’re over 50;
      for 2008 ,000 for under 50, ,000 if you’re 50 or older

43. QUESTION:
    What is a reasonable 401K contribution for someone just starting out? 5 or 10% with annual 50K salary?

    • ANSWER:
      Look into a post-tax (or Roth) 401k. If your employer gives you an option, that’s where you want to put the 401k money.

      As stated above, get the match, then contribute to the Roth IRA, and then go back to the Roth 401k if you have more money you want to put away. Right now, if you can afford to I’d max them out. The reason is because the interest is tax-free.

      The tax benefits aren’t why I’d encourage you to go Roth. It’s because of the penalty free withdraws (on only what you put in your account, not the gains). You’ll probably want to make a downpayment on a house, possibly put money on a car, or have money for other investments. If you need to snag money from a Roth 401k or Roth IRA you can (for those things or anything else that comes up — and they will, especially since you’re just starting out).

44. QUESTION:
    will i get to keep 100% of my company 401k contribution?
    is it true that i can keep 100% of my company matching contribution in my 401k if i choose to roll it over to an IRA instead of cashing out, and that company vesting percentage of how much of the company contribution i can keep will not apply even if i only work there for 1 year?

    • ANSWER:
      No.

      You will only be able to keep your contributions and the vested part.
      The company will immediately deduct their portion and then you can decide to roll over the rest into an IRA or Roth IRA. Or… cash out and pay the 10% penalty and the full tax amount due at tax time.

45. QUESTION:
    Does the 401k contribution limit include employer match, or is the match separate?
    I know that the 2006 limit is k, but does that include the employer match funds, or is k just the limit on employee contributions with the employer contributions outside of that?

    • ANSWER:
      In a traditional 401(k) plan, your contributions cannot exceed 15k for 2006. Your employer match doesn’t count.

46. QUESTION:
    NJ unemployment and 401K contribution?
    I’d like to know if 401K contribution affects the unemployment benefit. I believe the unemployment benefit is calculated on the base pay before deductions. So 401K contribution (whether it is 1% or 85%) should not make a difference to the unemployment benefits. Can anyone confirm? Thanks for any help!

    • ANSWER:
      No it doesn’t matter. The unemployment benefits are calculated on your income before any deductions so the 401k contribution doesn’t count.

47. QUESTION:
    Does the annual 401k contribution MAX of .5k include what my employer matches? Or can I do .5k match
    I just want to make sure I get the max in this account asap! Thanks
    I meant to say .5 plus the company match.

    • ANSWER:

48. QUESTION:
    Does opening an traditional IRA and rolling over 401k satisfy the yearly IRA contribution?
    I’m a 63yo retired man. I opened a traditional IRA and rolled over my 401k. Does that satisfy my yearly IRA contribution for tax purposes?
    Thank you.

    • ANSWER:
      Humberto

      No You cannot add the proceeds of your 401k to your existing IRA. It must be in a separate IRA rollover. The funds may no be co-mingled.

      In a traditional IRA, annual contributions are NOT mandatory, nor do you have to deposit the maximum. Put in what you can, when you can!

      Soccerref

49. QUESTION:
    allowed to recharacterize contribution from my traditional individual 401k to my Roth individual 401k?
    I have a traditional individual 401k (aka ‘solo 401k’). I’ve recently opened a new Roth individual 401k. Am I allowed to recharacterize this year’s contribution from my traditional individual 401k to my Roth individual 401k? If so, how would I do this considering that I’ve already bought stocks with the funds in the former?

    • ANSWER:
      Yes, it’s very much possible. You have to file tax form. The funds can be transferred, and you will be required to pay taxes on the original contribution, assuming it was a deductible traditional IRA. Call your accountant for more details./

50. QUESTION:
    Should I change my 401K contribution allocations?
    When I started it, I put some in each category, low, average, and high risk. Since October, it’s gone from 31,000 to 28,000. Should I move it all to low risk now (government bonds), or leave it where it is? I’m scared it will all be depleted at this rate.

    • ANSWER:
      Now is not the time to switch it over to low risk assets. It’s already made an enormous move downward. If anything it makes more sense to do the opposite and put more into stocks. It really depends on how far you are until retirement and if you are so worried about your money that you can’t stop thinking about it. You have lost less than 10% on your portfolio in an environment where many funds are down over 30%. So you are actually doing better than most people and probably in low risk investments already. If you have a long time until retirement you want to be more heavily allocated toward stocks, especially now that we are in the middle of the biggest fire sale in a century.