How is maximum retirement contribution is calculated if I change jobs?

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Topic Author
Southtonorth
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How is maximum retirement contribution is calculated if I change jobs?

Post by Southtonorth »

Hi all,

I'm relatively new to this. I'd like to put the maximum amount in the deferred retirement account, $19,500, this year. However, I'm switching jobs. My previous employer pays on every other Wednesday (3 days after the pay period). My current company pays on every other Fridays (10 days after the pay period). In other words, the number of paychecks I get for the year of 2021 may not be 26.

Suppose the last pay day in 2021 is 12/31/2020. Yet when I get paid on 01/14/2022, eight of the ten days for that paycheck is based on my work in 2021. Will the entire paycheck (01/14/2022) be considered income for the year of 2022? Or will 80% of this paycheck be considered income for the year of 2021? In other words, when I set up my paycheck deduction for 2021, do I consider the paycheck on 01/14/2022 at all?

This may be quite a dumb question. I started saving quite late in my life so I'd like to maximize it. However, I heard there would be penalties if I exceed the maximum allowed amount. I appreciate your input. Thanks.
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RickBoglehead
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Re: How is maximum retirement contribution is calculated if I change jobs?

Post by RickBoglehead »

All that matters is the payday, not the days it is for. A check received in 2022 is a 2022 contribution.

The $19,500 is across both jobs, total.
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KlangFool
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Re: How is maximum retirement contribution is calculated if I change jobs?

Post by KlangFool »

RickBoglehead wrote: Fri Jul 23, 2021 6:37 pm All that matters is the payday, not the days it is for. A check received in 2022 is a 2022 contribution.

The $19,500 is across both jobs, total.
We cannot assume that. We do not know that they are the same deferred account: 401K, 457, 403B. Details matters.

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Re: How is maximum retirement contribution is calculated if I change jobs?

Post by KlangFool »

OP,

We need to know what kind of deferred accounts. If they are not the same, the 19.5K limit does not apply across the employers. For example, 401K in the employer #1 and 403B in employer #2. They each has a separate 19.5K limit.

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David Jay
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Re: How is maximum retirement contribution is calculated if I change jobs?

Post by David Jay »

For me, I would skip a paycheck or two before starting the 401K withholding, just to be on the safe side.

If you want to save more, how about IRA contributions?
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Duckie
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Re: How is maximum retirement contribution is calculated if I change jobs?

Post by Duckie »

KlangFool wrote: Fri Jul 23, 2021 6:42 pm We need to know what kind of deferred accounts. If they are not the same, the 19.5K limit does not apply across the employers. For example, 401K in the employer #1 and 403B in employer #2. They each has a separate 19.5K limit.
No. If the OP has both a 401k and a 403b there is one $19,500 limit. It's the 457b that has a separate $19,500 limit. See here.
Topic Author
Southtonorth
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Re: How is maximum retirement contribution is calculated if I change jobs?

Post by Southtonorth »

Thank you all for the replies.

I know I have 401k with my previous employer.

I'm not sure about my current government employer. According to the help link, employees can select either 403(b) or 457 (before tax or after tax), if they're eligible. They cannot select both. I don't know whether I'm eligible to choose. I know we'd have pension. But I don't know whether pension is one of the above plans.
lakpr
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Re: How is maximum retirement contribution is calculated if I change jobs?

Post by lakpr »

Southtonorth wrote: Fri Jul 23, 2021 9:21 pm Thank you all for the replies.

I know I have 401k with my previous employer.

I'm not sure about my current government employer. According to the help link, employees can select either 403(b) or 457 (before tax or after tax), if they're eligible. They cannot select both. I don't know whether I'm eligible to choose. I know we'd have pension. But I don't know whether pension is one of the above plans.

Implicit in my recommendation above is the assumption that the fund choices between the two aren't too different in terms of expense ratios. I did see some plans on this forum where 403b plans have lower ERs compared to 457 plans, and vice versa.
If this is the case, choose 457 plan. You get all the advantages of the 403b plan, without the age 59.5 restrictions for penalty free withdrawal of money -- should you separate from the employer. 457 plan contributions, thus, help you self insure against one particular type of emergency: job loss.
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David Jay
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Re: How is maximum retirement contribution is calculated if I change jobs?

Post by David Jay »

My only caution is to look at the 457 plan choices carefully. I have seen some very high expense plans.
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