^Oh…ok ok. Got it now.
I got pretty close to the limit over the past couple of years. Generally, your employer must have some program to boost your 401k. I put in $17.5k, my company matched that, and I got a “profit sharing” bonus that went to the 401k. Not exactly sure how that last thing is classified, but I did not question them… A bigger fish than me probably would have maxed out.
My company will provide a full 401k match no matter what time of year you end up maxing out your contributions. I usually max out within the first two months of the year because I like to have the money in my account to invest if there are opportunities. The two catches to the match are that a) it has a multi year vesting schedule and b) it doesnt get paid until the following year so if you leave the firm before then you forfeit the match. In some respects this is even less employee friendly than the OP’s situation.
Don’t have my calculator on me…
there have been about 8 biweekly pay periods this year so far.
17000 / 8 = 2000-ish.
2000-ish / .05 = $400,000-ish.
400k / 5 x 12 = a million dollars per year?
Tell me if my math is wrong on this one.
So the OP is the biggest and swingingest of us all, or he’s a troll.
And +1 to everything KK said. Sounds like you guys should study your CFP a little more.
OP contributes 30% of salary to 401ks collectively until he maxes.
The math using greenie’s, the english teacher, 8 pay period assumption.
17,000/8 = 2125/.3=7083.333*26=$184,166.67 salary per year.
When will he stop? Does he have no shame?
Ah. I though the contributed 5%, not 30%. I didn’t see the “15% to each” thing.
Good thing for you it wasn’t multiple choice. You get partial marks for your work.
A more common way this limit is often reached is for sole proprietors - if you own your own business and receive 1099 income you can create an individual 401k and contribute to both the employee and employer side.
Or more easily, a SEP IRA, since there’s no real distinction between employer and employee when you’re self employed.
Except to max out your $52k contribution in a i401k you “only” need to be making ~$180k, while maxing a SEP at $52k requires ~$270k. Plus you can do an individual Roth 401k but SEP is pre-tax only.
^Huh?
The contribution limits are the same–25% of compensation or $51k (for 2013), whichever is lower.
There a few differences though. In a solo 401k, you can deduct 100% of the first $17,000. So if your compensation is $30,000, you can deduct $17,000. However, if your income is over $68,000, then this kinda becomes a moot point.
Also, with a 401k, you have to have an administrator. (In other words, you have to pay a lot of money just to have the plan. Not true with a SEP IRA.)
Also, 401k contributions have to be made by the end of the following month when your income is earned. (EG - if you made $5000 in March 2013, then you have to fund your 401k by the end of April 2013—for the employee part. The employer has until they file their tax return to make their contribution. Clear as mud?) With a SEP IRA, you have until October 15 of the following year (or whenever you file your tax return).
Short answer - if you make over $68k, then go with a SEP IRA. It’s easier and cheaper.
If you make less $68k, then start making more than $68k and go with a SEP IRA.
Strange how the more you make, the more tax deferred saving you are allowed. Why discriminate against those making less? Progressive, regressive, the joy of our schizophrenic tax code.
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I don’t think it was intended that way.
Yes, we didn’t intend to put all the american yacht makers out of business in the nineties with an additional tax on boats and put thousands of laborers on the streets, therefore we are not accountable. Please re-elect us anyway. Our legislation my hurt you, but be assured we are on your side. wink. wink. Intent is what matters.
I don’t think that’s right - with a solo 401k you get the $17k ($17.5k for 2013) as incremental to the 25% (20% for self employment income) up to the maximum $52k. For example, if you earn $50k, you can contribute $17.5k + (20% * $50k) = $27.5k to a solo 401k, while a SEP maximum would be 20% * $50k = $10k. This doesn’t become moot until you make over $270k. Plus if you contribute to a 401k it isn’t counted against your $5,500 annual IRA limit.
And at least with Vanguard, as long as you have $50k in assets there’s no 401k plan fee.
https://www.fidelity.com/retirement-ira/small-business/self-employed-401k/overview
Click the calculator link on this page and settle it. There are more admin duties with the 401k.
@Sundevil - I suppose you’re right. With a 401k, you get the 25% + the 17k. So you can always contribute more with the 401k.
I’m still not convinced that it’s the better way to go, though. You still have to comply with ERISA requirements, pay administrator fees, and it makes having employees extremely difficult, because you’d have to offer them the same match you’re “offering yourself”.