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My monthly pay check varies from month to month based on bonuses and overtime and I just keep a constant percentage of my pay check to be deducted for my 410k.
Once I go over the limit for the year will my company then just stop deducting from my paycheck for my 401k? Or is it my responsibility to track this myself and the lower my contribution percentage accordingly?
Also, is the year considered from January to December? Or from April 15 through the following April?
My monthly pay check varies from month to month based on bonuses and overtime and I just keep a constant percentage of my pay check to be deducted for my 410k.
Once I go over the limit for the year will my company then just stop deducting from my paycheck for my 401k? Or is it my responsibility to track this myself and the lower my contribution percentage accordingly?
Also, is the year considered from January to December? Or from April 15 through the following April?
It's from January to December.
They will automatically stop taking it out when you hit the cap.
FYI- Assuming you are making a fairly high wage to be hitting the cap, once you hit the social security wage cap for the year they also stop taking that out.
Year is Jan 1 to Dec 31. April 15 is just a dateline to file or what I call deadline to settle with IRS for previous year.
As for the 401K deduction. You need to confirm with your employer payroll department. Most would stop deduction once you hit the max. I set mine to hit the max around August so the last 8 paychecks for me each year comes with a bonus for non 401K deduction.
Another thing to check with your payroll department - if your company does a matching contribution, how is it calculated? If it's done every paycheck, then you may want to change your contribution percentage to insure that you get the maximum company match.
For example, say they match 1 to 1 up to 4%. You have 15% go to your 401K every paycheck, company puts in another 4% every paycheck. You hit the federal max in October, so nothing is taken out November and December, so company puts in zero match those months. This is not an uncommon situation, so check to see how they do a company match (if they do) so you get the most out of it.
Also be aware of the "catch up" clause. When you reach a certain age you can play catch up and contribute double the amount for I think five years. It's designed so that when you have the house paid for and the kids are gone, you can catch up on those lean years when you couldn't afford to put away as much as you would have liked to. I always contributed the max, they was able to double max for five years. I dumped so much into retirement accounts that when I retired at 60% of my working pay, I received more than I was bring home while working and paying 401k.
With catch up, you can designate any amount up to your max for five years. Once you start, you can't make any changes. You can drop out, but you can't make changes.
I can't remember exactly how it works because it was over ten years ago I did it. Really build the account up in a hurry...
I also retired on January 2nd so I could contribute the max 401k amount for that year. The company owed me bucks upon retirement, so I dumped a quick $20k into my 401k, another $15k into a tax free medical account, thereby saving immediate taxes on $35k....
Always have to be thinking to beat the system..
My payroll department stops the deduction on its own but I'd check just to make sure. I'd check on the matching as well but I don't run into that issue as my company only matches once a year.
Also be aware of the "catch up" clause. When you reach a certain age you can play catch up and contribute double the amount for I think five years. It's designed so that when you have the house paid for and the kids are gone, you can catch up on those lean years when you couldn't afford to put away as much as you would have liked to. I always contributed the max, they was able to double max for five years. I dumped so much into retirement accounts that when I retired at 60% of my working pay, I received more than I was bring home while working and paying 401k.
With catch up, you can designate any amount up to your max for five years. Once you start, you can't make any changes. You can drop out, but you can't make changes.
I can't remember exactly how it works because it was over ten years ago I did it. Really build the account up in a hurry...
I also retired on January 2nd so I could contribute the max 401k amount for that year. The company owed me bucks upon retirement, so I dumped a quick $20k into my 401k, another $15k into a tax free medical account, thereby saving immediate taxes on $35k....
Always have to be thinking to beat the system..
The 401k catchup isn't double it's only 5500 or so. 457 plans allow for a double catch up if you are 3 years from retitement
Just to add on to what others have said, check with your employer/payroll company regarding how they treat the max.
I posted a similar topic about this a little while ago. After following that exact advice, I found out that a) Yes, they will stop once I hit the max so I don't have to worry about going over, but b) they contribute per paycheck, meaning if hit max out by june, I miss out on half a year of matching contributions.
Ideally, you should try to max in december, but you may actually be better off under contributing than maxing out early because free money is better than more tax deferred money. I'd rather have missed contributing $500 than have missed out on getting a free $500.
The 401k catchup isn't double it's only 5500 or so. 457 plans allow for a double catch up if you are 3 years from retitement
OK, I was government and actually had 456b and could double up and it was more than three years before retirement.
I said 401k for ease of discussion, everyone knows what that is...
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