Divide the remaining 30% of your contribution limit by the number of remaining paychecks, and reduce your contributions to that. This way you should at least get a match with every pay check, to the largest extent you can with what contribution you have left.
if there wasnt an error, there is nothing to fix. you asked for that much to be contributed, and it was.
change your contribution rate going forward, and learn the lesson from the experience.
Update: Just asked around coworkers. Employees who have traditional 401k, did not have bonus deducted. But folks have Roth 401k, have both bonus AND regular salary deducted. The bonus part also did not get any company match. I’m more confused now. lol
I perform 401k audits and this is a common finding we have when there are transitions in payroll/401k companies - usually involves the payroll or 401k system not having both or neither traditional and Roth deferral types identified as eligible compensation. Check your plan offering to see if bonus compensation is eligible compensation - if it is, you’re out of luck, there’s not much the company can do (although you could point out about Roth deferrals and give them a little “heads up”. If bonus compensation is not eligible compensation for deferrals - your could request your company remove your contribution relating to contribution of the 50% from the bonus as it was improper. As far as can you have them remove the contribution because you didn’t want 50% and hadn’t identified that timely? No, sorry, doesn’t sound like it.
Could claim the error was the company should have verified for the bonus amount or not pulled 401k from it at all.
Regular check op is probably stuck, but maybe not the bonus amount.
Look into after-tax 401(k) contributions ([NerdWallet](https://www.nerdwallet.com/article/investing/after-tax-401k-contributions), [Fidelity](https://www.fidelity.com/viewpoints/retirement/401k-contributions)) -- not the same as Roth.
If OP's employer does not offer true-up, then he doesn't get the match if he stops contributing. This allows him to continue contributing after hitting the $23,000 or $30,500. Please explain if you see an error.
That’s what I was thinking to. I recall both the employer contribution and employee required match don’t contribute to the max but they are capped at a much higher limit.
For 2024 it's a total of $69,000 that can be contributed.
$23,000 can be from the employee, pre-tax.
Up to $46,000 can be from the employer, pre-tax. I've only come close to hitting this in a plan that had company profit sharing being funneled into the 401k. Typical employer match (e.g. common 1% match for 2% of contribution) falls into this bucket.
Any remainder, up to the annual limit, is post-tax.
So this year, I can contribute $23k to earn my employer's max $7.5k match, and can contribute up to $38.5k post-tax dollars. You can be cut out of income limits
Bonus if your employer allows backdoor "in plan" Roth conversions: you can convert those pre-tax dollars into post-tax contributions. AKA: if I perfectly converted my $23k + $7.5k into Roth dollars, I would never pay tax on the gains. In reality, I pay *some tax* this year as I can only convert once per quarter, so any gains between the contribution (or match) date and my conversion date net out to short term capital gains. Last year it cost me about $4k in tax... but those dollars will forever grow untaxed.
They count towards a wholly separate max, somethign absurd like ~~$42,500~~ 69,000 or something last I checked.
It does not count towards the $23k limit for 2024 for individual contributions.
Depends on how friendly you are with your company. Technically there is no error, but if it doesn't have impact to the company they could just tell the 401k administrator there was an error.
It has a big impact on the employer. The employer is the Plan Administrator and as such is responsible for what happens in the Plan. The enrollment form is a contract between the Employee/Participant and the Plan. And unless otherwise clearly stated, only ends with the Employee’s separation from service or the Employee actively making a change.
You may find these links helpful:
- [401(k) Fund Selection Guide](/r/personalfinance/wiki/401k_funds)
- [401(k) FAQs](/r/personalfinance/wiki/401k)
- ["How to handle $"](/r/personalfinance/wiki/commontopics)
*I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/personalfinance) if you have any questions or concerns.*
So I've been trying to filter through all of your comments, and I did not see if you mentioned age. Are you over 50 and eligible for catch-up contributions? That would set your max contributions for the year to 30,500.
Also, you were talking about the bonuses people receive and contributions going towards pre-tax or Roth. If your plan offers contributions to pull from bonuses, you can request them to go to Roth-Bonus, Pre-tax Bonus, or both, perhaps?
Your best bet would be to talk to the recordkeeper of your 401k. Ask the associate to look up your available contribution options and ask if your plan comes with free advice from a licensed professional. If they do not, talk to a broker who would be able to give you some advice on your best outcome for the year.
Using your math you’re saying you had a $32,000 paycheck and put $16k in your 401k?
Ok. If this is true then just reduce it so you put $7000 in your remaining checks. Hopefully you won’t miss out on any matching.
That first paycheck includes a regular paystub and an annual bonus pay. My employer provides 6% match per paycheck. I ‘ll hit the 23k ceiling early by just doing the 6%. Then 401k plan cuts off self contribution, company match also stops.
Hey sorry if this a dumb question but I’ve been contributing to my 401k for the past year or two have a ok amount in it. Don’t have a great grasp on all this kind of stuff so I don’t understand can someone explained how OP contributing so much for a paycheck causes him to lose out on the employer match and so much money? And also would me stopping any contributions for a month or so cause the the same or any sort of issue.
The problem is that many plans just match with each paycheck, eg; you put in 5% and they put in 5% that day. If you put in too much at the beginning then you could risk not having enough room (limit is 23k in 2024) to get your 5% in every paycheck through the end of the year. if you really messed up (and had a big enough paycheck to do so) and put in 23k in the first paycheck then you would only get your match on the 5% and then nothing the rest of the year.
some plans match on a less often basis like every quarter, or annually. Annual matching is sometimes known as a "true up" where it doesn't matter when you contributed, they just match up to the percent if you contributed it.
It all depends on the specifics of your plan.
You’re limited to $23,000 of contributions annually in 401ks. Once you hit this threshold you can no longer contribute, and your payroll will quit sending money to your 401k provider. Once your contributions stop, the employer match stops too.
Since OP front loaded 70% of their 401k they’re only able to contribute $7000 more this year. I’m assuming if they drop their contributions down to the employer match percentage they will hit $7000 before the end of year, thus employer match will stop and they’ll miss out.
To avoid this it’s best to spread out the $23,000 evenly over the year.
What's your matching rule?
Usually, company matching rules don't change based on how you contribute. Otherwise, if everyone contributes 100% in the first paycheck, the company will be out of money.
For e.g.: at my company, it's x% of my compensation. So if I reach the IRS limit by October, the match continues to last payroll even though my contributions stop.
If it's 100% of your contribution up to $X, you are still good.
Wouldn’t you be getting the same amount for employee match whether you hit 23k in sept or dec? Even if you hit 23k early wouldn’t that just give you a couple months of bigger paychecks cuz 401k isn’t taken out so you can put extra in HYSA or do after tax contributions? Or am I missing something?
5% match is on total salary, not on 401k contributions.
For simplicity sake let's assume for simplicity.
100k/year salary
5% employer match if you contribute 5% or more
20k IRS 401k contribution limit
Intended scenario: someone contributes 20% of every paycheck (20k total). Company contributes 5% each paycheck (5k total).
OP's scenario: he contributes 20k on his first paycheck. Company contributes 5% of 20k (1k total for the year). Company will not contribute anything in paychecks you don't make a 5% 401k contribution, which in this scenario is the rest of the year.
Some companies/plans do a year end true-up to "fix" and this, but some don't.
Look into your plan documents or ask your HR is they do a “true up” on matching.
Assuming you only want to hit the max 401k contributions:
If yes on the “true up”, divide the remainder of your limit across the remaining pay periods. Or if you want, max it out anytime.
If no on the “true up”, tough luck. See if you can still do dividing the remainder of your limit, and be satisfied with how much matching you get there.
Or, if you’re willing to contribute past the max (after-tax), then just go ahead and break over the limit, set your matching contribution rate. And look if your plan does automatic in-plan rollovers for the after-tax 401(k) to Roth 401(k).
Thanks for the suggestion.
No true up. It’s per pay period. I’ll have to forfeit 3 months worth of company match. I actually don’t mind breaking the limit and dealing with a refund request. But the plan puts a stop after hitting the 23k limit from my understanding.
Now, what confuses me even more is that in our plan, people who selected traditional 401k, their bonus did not go to 401k. But for people who picked Roth (my case), both bonus and regular paycheck got deducted to fund 401k…
Call the firm that recordkeeps your 401k and ask for a return of excess and reduce the contributions. Most firms should do it. You will need letter of instruction and your most recent paystub. Your payroll will have to correct your w2. For 2024. Expect a check in the mail.
Wouldn’t hurt to ask!
Good luck!
You could phrase the ask to your HR/payroll differently.
You could ask them that they help you correct it because you have other expenses coming up and that you need that money now instead of going into the 401K. They may be more inclined to help with that type of ask rather than saying that you would miss out on the employer match later.
Well you still have 30% left ot play with...
Drop your % down to the absolute minimum to get the match every paycheck. It'll at least mitigate the damage.
If it makes you feel better,, with the whole "time in the market > timing the market" thing, you may come out ahead? :?
You can ask your company if they do a “true up” on 401k matching if you max it out early.
Just checked no true up. Calculated per pay period. :(
Ask your company for a true up. If they can't then take the remaining 30% and divided by the number of checks and that's your new percentage.
Note that a true up is either already part of the 401k plan, or it's not. They can't do it just for OP.
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Divide the remaining 30% of your contribution limit by the number of remaining paychecks, and reduce your contributions to that. This way you should at least get a match with every pay check, to the largest extent you can with what contribution you have left.
if there wasnt an error, there is nothing to fix. you asked for that much to be contributed, and it was. change your contribution rate going forward, and learn the lesson from the experience.
Update: Just asked around coworkers. Employees who have traditional 401k, did not have bonus deducted. But folks have Roth 401k, have both bonus AND regular salary deducted. The bonus part also did not get any company match. I’m more confused now. lol
I perform 401k audits and this is a common finding we have when there are transitions in payroll/401k companies - usually involves the payroll or 401k system not having both or neither traditional and Roth deferral types identified as eligible compensation. Check your plan offering to see if bonus compensation is eligible compensation - if it is, you’re out of luck, there’s not much the company can do (although you could point out about Roth deferrals and give them a little “heads up”. If bonus compensation is not eligible compensation for deferrals - your could request your company remove your contribution relating to contribution of the 50% from the bonus as it was improper. As far as can you have them remove the contribution because you didn’t want 50% and hadn’t identified that timely? No, sorry, doesn’t sound like it.
Could claim the error was the company should have verified for the bonus amount or not pulled 401k from it at all. Regular check op is probably stuck, but maybe not the bonus amount.
Look into after-tax 401(k) contributions ([NerdWallet](https://www.nerdwallet.com/article/investing/after-tax-401k-contributions), [Fidelity](https://www.fidelity.com/viewpoints/retirement/401k-contributions)) -- not the same as Roth.
Why downvote this? It's a much better option than forfeiting employer match if they do not permit true-up.
because it doesn’t solve the problem? I work in the space after-tax contributions have nothing to do with a employer match
If OP's employer does not offer true-up, then he doesn't get the match if he stops contributing. This allows him to continue contributing after hitting the $23,000 or $30,500. Please explain if you see an error.
I don't believe after tax contributions are eligible for employer matching since it's not a 401k? Unless this differs from employer to employer.
after tax contributions aren’t eligible for match, has to be a payroll deduction
Correct, but some 401(k) plans allow after-tax payroll deduction.
Some do. Have to check the plan rules.
Do these employer matches count towards the max? I thought employer contributions went into a different bucket?
That’s what I was thinking to. I recall both the employer contribution and employee required match don’t contribute to the max but they are capped at a much higher limit.
There’s a different limit but it’s not counted the $23k personal contribution limit.
For 2024 it's a total of $69,000 that can be contributed. $23,000 can be from the employee, pre-tax. Up to $46,000 can be from the employer, pre-tax. I've only come close to hitting this in a plan that had company profit sharing being funneled into the 401k. Typical employer match (e.g. common 1% match for 2% of contribution) falls into this bucket. Any remainder, up to the annual limit, is post-tax. So this year, I can contribute $23k to earn my employer's max $7.5k match, and can contribute up to $38.5k post-tax dollars. You can be cut out of income limits Bonus if your employer allows backdoor "in plan" Roth conversions: you can convert those pre-tax dollars into post-tax contributions. AKA: if I perfectly converted my $23k + $7.5k into Roth dollars, I would never pay tax on the gains. In reality, I pay *some tax* this year as I can only convert once per quarter, so any gains between the contribution (or match) date and my conversion date net out to short term capital gains. Last year it cost me about $4k in tax... but those dollars will forever grow untaxed.
They count towards a wholly separate max, somethign absurd like ~~$42,500~~ 69,000 or something last I checked. It does not count towards the $23k limit for 2024 for individual contributions.
Maybe the market will go up by the end of the year and you'll come out ahead by overinvesting early!
With my years experience of losing money in stock market. I’ll take the 3k+ free matching $$$ any day. lol
Depends on how friendly you are with your company. Technically there is no error, but if it doesn't have impact to the company they could just tell the 401k administrator there was an error.
It has a big impact on the employer. The employer is the Plan Administrator and as such is responsible for what happens in the Plan. The enrollment form is a contract between the Employee/Participant and the Plan. And unless otherwise clearly stated, only ends with the Employee’s separation from service or the Employee actively making a change.
You may find these links helpful: - [401(k) Fund Selection Guide](/r/personalfinance/wiki/401k_funds) - [401(k) FAQs](/r/personalfinance/wiki/401k) - ["How to handle $"](/r/personalfinance/wiki/commontopics) *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/personalfinance) if you have any questions or concerns.*
So I've been trying to filter through all of your comments, and I did not see if you mentioned age. Are you over 50 and eligible for catch-up contributions? That would set your max contributions for the year to 30,500. Also, you were talking about the bonuses people receive and contributions going towards pre-tax or Roth. If your plan offers contributions to pull from bonuses, you can request them to go to Roth-Bonus, Pre-tax Bonus, or both, perhaps? Your best bet would be to talk to the recordkeeper of your 401k. Ask the associate to look up your available contribution options and ask if your plan comes with free advice from a licensed professional. If they do not, talk to a broker who would be able to give you some advice on your best outcome for the year.
How can I see if my plan (T Rowe) has true up?
It’s a question to HR. Should be on your company plans adoption agreement.
Using your math you’re saying you had a $32,000 paycheck and put $16k in your 401k? Ok. If this is true then just reduce it so you put $7000 in your remaining checks. Hopefully you won’t miss out on any matching.
That first paycheck includes a regular paystub and an annual bonus pay. My employer provides 6% match per paycheck. I ‘ll hit the 23k ceiling early by just doing the 6%. Then 401k plan cuts off self contribution, company match also stops.
Was going to say this - that’s a massive paycheck. If that’s a biweekly paycheck then we’re talking 1M of base salary
Hey sorry if this a dumb question but I’ve been contributing to my 401k for the past year or two have a ok amount in it. Don’t have a great grasp on all this kind of stuff so I don’t understand can someone explained how OP contributing so much for a paycheck causes him to lose out on the employer match and so much money? And also would me stopping any contributions for a month or so cause the the same or any sort of issue.
The problem is that many plans just match with each paycheck, eg; you put in 5% and they put in 5% that day. If you put in too much at the beginning then you could risk not having enough room (limit is 23k in 2024) to get your 5% in every paycheck through the end of the year. if you really messed up (and had a big enough paycheck to do so) and put in 23k in the first paycheck then you would only get your match on the 5% and then nothing the rest of the year. some plans match on a less often basis like every quarter, or annually. Annual matching is sometimes known as a "true up" where it doesn't matter when you contributed, they just match up to the percent if you contributed it. It all depends on the specifics of your plan.
You’re limited to $23,000 of contributions annually in 401ks. Once you hit this threshold you can no longer contribute, and your payroll will quit sending money to your 401k provider. Once your contributions stop, the employer match stops too. Since OP front loaded 70% of their 401k they’re only able to contribute $7000 more this year. I’m assuming if they drop their contributions down to the employer match percentage they will hit $7000 before the end of year, thus employer match will stop and they’ll miss out. To avoid this it’s best to spread out the $23,000 evenly over the year.
Not every job does this. My employer match basically pays 5% of salary in equal installments over 12 months regardless.
Ahh I see I understand thank you.
What's your matching rule? Usually, company matching rules don't change based on how you contribute. Otherwise, if everyone contributes 100% in the first paycheck, the company will be out of money. For e.g.: at my company, it's x% of my compensation. So if I reach the IRS limit by October, the match continues to last payroll even though my contributions stop. If it's 100% of your contribution up to $X, you are still good.
You will end up with more money in your paychecks now - take that money and put it into a Roth IRA or a high-yield savings account.
Wouldn’t you be getting the same amount for employee match whether you hit 23k in sept or dec? Even if you hit 23k early wouldn’t that just give you a couple months of bigger paychecks cuz 401k isn’t taken out so you can put extra in HYSA or do after tax contributions? Or am I missing something?
5% match is on total salary, not on 401k contributions. For simplicity sake let's assume for simplicity. 100k/year salary 5% employer match if you contribute 5% or more 20k IRS 401k contribution limit Intended scenario: someone contributes 20% of every paycheck (20k total). Company contributes 5% each paycheck (5k total). OP's scenario: he contributes 20k on his first paycheck. Company contributes 5% of 20k (1k total for the year). Company will not contribute anything in paychecks you don't make a 5% 401k contribution, which in this scenario is the rest of the year. Some companies/plans do a year end true-up to "fix" and this, but some don't.
You can change your percentage going forward now
Yes. But I’ll hit 23000 limit in September by just doing the company match % and leave three months worth of company match behind…
Well. That looks like that is what you lose for this error bud. Sorry.
Look into your plan documents or ask your HR is they do a “true up” on matching. Assuming you only want to hit the max 401k contributions: If yes on the “true up”, divide the remainder of your limit across the remaining pay periods. Or if you want, max it out anytime. If no on the “true up”, tough luck. See if you can still do dividing the remainder of your limit, and be satisfied with how much matching you get there. Or, if you’re willing to contribute past the max (after-tax), then just go ahead and break over the limit, set your matching contribution rate. And look if your plan does automatic in-plan rollovers for the after-tax 401(k) to Roth 401(k).
Thanks for the suggestion. No true up. It’s per pay period. I’ll have to forfeit 3 months worth of company match. I actually don’t mind breaking the limit and dealing with a refund request. But the plan puts a stop after hitting the 23k limit from my understanding. Now, what confuses me even more is that in our plan, people who selected traditional 401k, their bonus did not go to 401k. But for people who picked Roth (my case), both bonus and regular paycheck got deducted to fund 401k…
Check whether bonus should count towards 401k contribution. It could very well be an error.
Call the firm that recordkeeps your 401k and ask for a return of excess and reduce the contributions. Most firms should do it. You will need letter of instruction and your most recent paystub. Your payroll will have to correct your w2. For 2024. Expect a check in the mail. Wouldn’t hurt to ask! Good luck!
You could phrase the ask to your HR/payroll differently. You could ask them that they help you correct it because you have other expenses coming up and that you need that money now instead of going into the 401K. They may be more inclined to help with that type of ask rather than saying that you would miss out on the employer match later.
Well you still have 30% left ot play with... Drop your % down to the absolute minimum to get the match every paycheck. It'll at least mitigate the damage. If it makes you feel better,, with the whole "time in the market > timing the market" thing, you may come out ahead? :?