Elective contributions and after-tax contributions

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Topic Author
MBB_Boy
Posts: 899
Joined: Sat May 12, 2018 4:09 pm

Elective contributions and after-tax contributions

Post by MBB_Boy »

All,

DW and I were worried about her 401K provider accidentally letting her exceed the 57K 401K limits. Have been told multiple times that they would stop her automatically, but just did a check and it looks like we are over the limit with >$66K contributed (19.5K pre-tax, 29K after-tax, 15.8K employer discretionary profit share, and another $2K in employer match).

Spent about 40 mins chatting with T.Rowe, and they are adamant that we haven't exceeded because "the plan says she will be stopped". Lots of back and forth, transfers, and being told their "system isn't working so they can't see our transactions ourselves".

Before we play rep roulette and waste more time trying to understand this, figured I'd reach out here and see if anyone knows what is going on.

My working hypothesis: T. Rowe is correct and we are not over the limit, because the $15.8K employer discretionary profit share doesn't count as it is elective. The specific IRS language says that "nonelective" employer contributions count toward the limit. https://www.irs.gov/retirement-plans/pl ... ion-limits

Is this the answer? Can obviously wait and see if we end up getting stopped after more contributions, but would rather not dig a deeper hole if we can avoid it..........
SRenaeP
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Re: Elective contributions and after-tax contributions

Post by SRenaeP »

It's highly unlikely that the plan administrator will allow you to exceed the cap. That said, it can be hard to find someone to provide guidance as it's not a common occurrence. I thought I was going to exceed the limits for 2020 because what would have been a 1/1/21 paycheck was actually cut for 12/31/2020. It took a while to figure out what happened but the plan did actually stop at $57k. Further employER contributions did not go to my 401k. An NQCAP was created and the funds were routed there instead.
skierincolorado
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Re: Elective contributions and after-tax contributions

Post by skierincolorado »

Not sure on original question, but does she have employer match? If so, hitting the cap before the last paycheck will usually not maximize the employer match. The match is a percent of pay each pay period not of whole salary. If Counting on them to cut her off at the limit she will miss match for remainder of year.
Topic Author
MBB_Boy
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Re: Elective contributions and after-tax contributions

Post by MBB_Boy »

skierincolorado wrote: Wed Oct 27, 2021 2:26 pm Not sure on original question, but does she have employer match? If so, hitting the cap before the last paycheck will usually not maximize the employer match. The match is a percent of pay each pay period not of whole salary. If Counting on them to cut her off at the limit she will miss match for remainder of year.
They true up so not an issue
HomeStretch
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Re: Elective contributions and after-tax contributions

Post by HomeStretch »

Your spouse should contact her HR Benefits person to ask if she is over the annual limit.

If not detected/corrected now, it should be caught in the 2021 401k testing when it is done. IIRC (it’s been awhile) the administrative correction is to reduce the employER contributions first. If so, it’s better financially for you to stop the 2021 employEE contributions as soon as possible if your spouse is over the limit now.
MBB_Boy wrote: Wed Oct 27, 2021 11:24 am DW and I were worried about her 401K provider accidentally letting her exceed the 57K 401K limits.
The 2021 401k limit is the lesser of $58k or 100% of eligible compensation.

Is your spouse age 50+ and eligible to make a $6.5k catch-up contribution for 2021?
TropikThunder
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Re: Elective contributions and after-tax contributions

Post by TropikThunder »

MBB_Boy wrote: Wed Oct 27, 2021 11:24 am 15.8K employer discretionary profit share
——————————————————-
My working hypothesis: T. Rowe is correct and we are not over the limit, because the $15.8K employer discretionary profit share doesn't count as it is elective. The specific IRS language says that "nonelective" employer contributions count toward the limit. https://www.irs.gov/retirement-plans/pl ... ion-limits
Employer non-elective contributions means ones contributed by the employER regardless of the employEE’s participation. This is in contrast to employER matching contributions which *do* require the employEE’s participation. So the profit share is non-elective (you get it even if you elect not to participate) and should count against the $58,000 cap.
Topic Author
MBB_Boy
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Re: Elective contributions and after-tax contributions

Post by MBB_Boy »

HomeStretch wrote: Wed Oct 27, 2021 3:18 pm Your spouse should contact her HR Benefits person to ask if she is over the annual limit.

If not detected/corrected now, it should be caught in the 2021 401k testing when it is done. IIRC (it’s been awhile) the administrative correction is to reduce the employER contributions first. If so, it’s better financially for you to stop the 2021 employEE contributions as soon as possible if your spouse is over the limit now.
MBB_Boy wrote: Wed Oct 27, 2021 11:24 am DW and I were worried about her 401K provider accidentally letting her exceed the 57K 401K limits.
The 2021 401k limit is the lesser of $58k or 100% of eligible compensation.

Is your spouse age 50+ and eligible to make a $6.5k catch-up contribution for 2021?
Not 50+, and of course HR said to talk to T. Rowe
Topic Author
MBB_Boy
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Re: Elective contributions and after-tax contributions

Post by MBB_Boy »

TropikThunder wrote: Wed Oct 27, 2021 3:52 pm
MBB_Boy wrote: Wed Oct 27, 2021 11:24 am 15.8K employer discretionary profit share
——————————————————-
My working hypothesis: T. Rowe is correct and we are not over the limit, because the $15.8K employer discretionary profit share doesn't count as it is elective. The specific IRS language says that "nonelective" employer contributions count toward the limit. https://www.irs.gov/retirement-plans/pl ... ion-limits
Employer non-elective contributions means ones contributed by the employER regardless of the employEE’s participation. This is in contrast to employER matching contributions which *do* require the employEE’s participation. So the profit share is non-elective (you get it even if you elect not to participate) and should count against the $58,000 cap.
Crap, there goes that theory.

Guess I will have to see about getting some of her contributions back in order to not lose the employer money
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SteelyEyed
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Re: Elective contributions and after-tax contributions

Post by SteelyEyed »

My wife and I exceed the limit every year because the mandatory pension contributions count toward the limit but are not part of the 401k system's calculations (and we can only contribute in round %'s, not $). This gets corrected every spring when they do the compliance testing. The resolution is that the excess funds are removed from the employee after-tax contributions. Our excesses are never large enough to consume that category of contributions and move to the next on the list.
nolesrule
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Re: Elective contributions and after-tax contributions

Post by nolesrule »

HomeStretch wrote: Wed Oct 27, 2021 3:18 pm If not detected/corrected now, it should be caught in the 2021 401k testing when it is done. IIRC (it’s been awhile) the administrative correction is to reduce the employER contributions first. If so, it’s better financially for you to stop the 2021 employEE contributions as soon as possible if your spouse is over the limit now.
I'm fairly certain that employee after-tax contributions are returned before employER contributions.
Topic Author
MBB_Boy
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Re: Elective contributions and after-tax contributions

Post by MBB_Boy »

SteelyEyed wrote: Thu Oct 28, 2021 8:40 am My wife and I exceed the limit every year because the mandatory pension contributions count toward the limit but are not part of the 401k system's calculations (and we can only contribute in round %'s, not $). This gets corrected every spring when they do the compliance testing. The resolution is that the excess funds are removed from the employee after-tax contributions. Our excesses are never large enough to consume that category of contributions and move to the next on the list.
Thanks for the gouge! Do you remember what ends up happening to the gains?
Topic Author
MBB_Boy
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Re: Elective contributions and after-tax contributions

Post by MBB_Boy »

Update - I'm told they will be sending me a check for the overage. They did not stop my contributions at the threshold like they promised, but I suppose I am not being "allowed" to go over because they are taking the money out and sending it back. Will never know what would have happened if I hadn't proactively reached out - I'm guessing I would have gotten months of contributions mailed back randomly sometime early next year
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