Smooth at FL450

As long as you get your employee contribution in first! If you wait and let the company fills up the employer portion of the bucket before starting with your contributions, you'll be limited.

cesnacaptn

Does it matter if you get your employee contribution in first (other than time in the market)?

gollum

yes it matters, if the combined contribution limit of 57,000 is reached before you get your 19,500 in there, you will not be permitted to contribute any further amount pre-tax

if you max out the 19,500 first, then company contributions will be limited.

either way, it’s all about balancing your options . in one case you maximize your tax savings, in the other you maximize money from the company.

FlyGuy2002

3 scenarios

pilot A contributes 0%. On $285,000, at years end delta contributes $45,600 and pilot nothing.

pilot B contributes 5%. On $285,000 at years end pilot contributed $14,250 and delta $42,750. Combined is the max of $57,000

pilot C contributes 10% on $285,000 pilot C maxes out his contribution of $19,500 in roughly the 8th month. At which point delta has put in $30,400. Combined $49,900. Under the max and delta continues distribution until $57,000 is reached.

pilot A Never reached the max. But it’s obvious why. Pilot A never put anything in. Pilot B is smart enough to know this argument is somewhat moot since 5% of $285,000 isn’t $19,500 regardless of what delta does.

My math shows around break even of 7% around Mid November. ​​​​​​At that percentage you and delta would hit the combined max with you About $2000 short of you contributing $19,500 while hitting the combined max.

and if you contribute less than 6% you never woulda maxed out anyway .

ackeight

I’m pretty sure Roth contributions are still limited to the 19.5 under 50 limit. So saying pre tax and post tax shouldn’t matter. Jfyi.

gollum

it absolutely does matter. Many non-Roth 401k plans allow you to make after-tax contributions above the 19k limit up to the 415c limit. Also, many of of those plans then allow you “back door” covert those after-tax contributions to a Roth 401 essential bypassing the individual contribution limit.

ackeight

You must have a special plan that allows Roth contributions above 19.5. We can’t. You can convert your non Roth, but pay the taxes out of your own bank account.

cesnacaptn

Do you work for a company that doesn’t pay “cash over cap?”

If you work for a company that pays cash over cap, it doesn’t matter if you max out your 401(k) contributions, if you will reach the 415(c) combined contribution limit (57k in 2020) one way or another.

At least that’s the case if your company DC plan is greater than 13% and you will make the 401(a) limit or more (285k in 2020)

gollum

And so my point stands that there is a situation in which the employee would not be able to contribute the full 19,500 if they don't set their percentage high enough to ensure they hit the 19,500 prior to hitting the combined limit, and the more you make the earlier in the year you hit that limit.

cesnacaptn

It looks like we were typing at the same time, but what difference does it make if you don’t contribute the full $19,500?

You’re still paying taxes on money that’s over the $57,000 limit, whether it comes in the form of cash over cap or income you didn’t contribute into your 401(k).