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I am currently contributing enough to hit the limit (~$18000) per year and get a match of 100% for 4% of it.

My 401k provider (Fidelity) just sent me a quarterly progress email and suggests that I save more. Say 15%. If I do so, I'll cross the 401k limit.

Should I just ignore that recommendation or is there something else I could/should do?

EDIT: I looked at the email again. For the sake of posterity, it does look like they were referring to retirement election (which has 2 sections - Employee Deferral and Roth Deferral). Employee Deferral has the percentages that I am contributing towards 401k.

Exact text of that snippet of the email:

Saving for your future? Check. Contributing the suggested 15%† or more? Not quite—but you're so close! Get there in less than 60 seconds. < Button that says "Yes, Crush it!" >

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    The limit for 2019 is $19,000.
    – yoozer8
    Jun 28, 2019 at 20:01
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    Because they have a vested interest in you giving them more money.
    – Kevin
    Jun 28, 2019 at 20:05
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    You certainly should not contribute more than the limit, if your provider would even let you. Their emails are just standard marketing nonsense.
    – Kevin
    Jun 28, 2019 at 20:08
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    It's not redundant at all. 100% match of 4% and 50% match of 8% are not the same thing.
    – quid
    Jun 28, 2019 at 20:57
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    Depending on your plan, you might actually be able to contribute more than even $19,000. $19,000 is just the limit on deductible and Roth contributions; you can still make after-tax (non-Roth) contributions if your plan lets you, and even auto-convert those contributions to Roth in a backdoor process even sillier than the backdoor Roth IRA if your plan has the feature.
    – user2357112
    Jun 29, 2019 at 9:42

4 Answers 4

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From the excerpt you posted:

Contributing the suggested 15%† or more?

This makes it pretty clear that they simply have a rule that people contribute 15% or more. It's obviously a silly rule in your case, but I suspect that most people receiving that message make less than the $180,000 per year that you apparently do. For anyone making $120,000 or less, 15% is a quite reasonable goal.

I would guess that they just don't find it worth fixing for the small percentage of recipients who make more than $120,000 and don't just sigh when they see something like that.

If they were really making an informed decision, they wouldn't be asking if you were contributing 15% or more. They'd tell you your contribution percentage. As is, it seems they send the same message to everyone whether they are contributing more than 15%, the max, or not enough.

I notice that I don't actually answer the question you asked, although I hope that this helps clarify things. But the literal answer is that they ask people to save more because their fees tend to be commission-based. So the more you save, the more they make. It's just marketing to increase their revenues.

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No one at fidelity told you to save more. Some poorly coded notification system suggested you save a higher percentage of your income with no consideration that your current election is taking you within spitting distance of the maximum.

It's probably important to remember that the custodian is just a vendor of the company you work for. You're entering a payroll deduction rate, the vendor then tells your employer, your employer then adjusts payroll. Generally speaking the payroll deduction process will max you then stop contributing unless you've given them specific instructions to the contrary.

You shouldn't assume that's the case, but fidelity isn't directly reaching in to your paychecks, your company is sending them the contributions and an allocation statement and generally goes out of its way to avoid overfunding.

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  • Yeah if that is the case I'd be super annoyed. It is not only impersonal but also has a risk of someone who may not be careful to accidentally click through and set it to 15% (like they 'recommend'). I am also thinking they are generally meaning 401k and Roth...? I edited my post for the sake of posterity.
    – perennial_noob
    Jun 28, 2019 at 21:34
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    You, personally, don't have a relationship with your 401(k) custodian. You have an employer, your employer has a 401(k) plan and generally outsources the custodial, administrative, and reporting efforts; in your case that's been outsourced to Fidelity. You don't have an individual 401(k) account at Fidelity, or anything like that. It's not like your Netflix subscription where you're authorizing someone to deduct something from your checking account. I hope that's helpful.
    – quid
    Jun 28, 2019 at 22:39
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    @quid: Actually you do have an individual 401k account at whatever provider. You can log in, check balances, even withdraw money if you meet the criteria. What you can't do (AFAIK) is contribute your own money - the contributions go through the employer.
    – jamesqf
    Jun 29, 2019 at 4:08
  • @jamesqf no. You can check your balances and direct up to what your employer will allow. Your 401(k) is with your employer, your employer sets all of the parameters and can change custodians if it so desires. It's a technicality, sure, but you didn't pick the custodian and you have no ability to pick a different one. You have a right to assets held by your emoyer.
    – quid
    Jun 29, 2019 at 19:17
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    @quid: The reality is somewhere in between. No one seems to know whether 401(k) funds are considered "yours" for the purposes of wash sales.
    – Ben Voigt
    Jun 29, 2019 at 20:19
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You didn't mention how old you are, which may be a factor, but as you observe you are already contributing the maximum you can to a 401(k) (or at least close to it).

Most retirement systems have some sort of "retirement calculator" that look at your current savings rate, time to retirement, other retirement assets, and cost of living to determine if you are saving enough to retire by your target age. It either has some default values, or you've put in some values that indicate that your current saving rate will not be enough to meet your retirement goals (e.g. you want to retire in 2 years and make $1 million per year for 30 years in retirement).

Take a closer look at the data they are using, adjust it to your current goals (including other retirement assets) and see if it still suggests you save more.

If you still don't have enough to meet the goals you set, then you can make adjustments. Yes, there is a limit to how much you can contribute to a 401(k) pre-tax, but there are other ways to save for retirement. You can look at Roth IRAs, or non-tax-advantaged accounts to increase your retirement savings.

Also note that if you can contribute to a Roth 401(k), then the after-tax future value of your retirement will be higher since the contribution limit is the same, but the earnings are tax-free at retirement.

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  • This must be it. To answer your question, I am 34 and contributing close to the limits and getting the full match from the employer. Perhaps the email is hinting at saving more (not necessarily 401k as you pointed out). I edited my question to include the email snippet.
    – perennial_noob
    Jun 28, 2019 at 21:32
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    @perennial_noob If you are maxing out your 401K at age 34, you are doing quite well.
    – DaveG
    Jun 29, 2019 at 18:15
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It is virtually certain that the reason your investment manager is encouraging you to invest more is because he will make more money if you do. He may have targets to meet and your additional investment would help him reach them.

That is not to say his advice is necessarily bad, but we would need a lot more information to be able to pass an opinion on that.

"Invest more" does not necessarily mean "put more in your 401K". He may be suggesting other accounts.

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  • "Bad" is a relative term. Sure, "Putting money into a fund with a lousy rate of return that earns the investment manager lots of commission" may be marginally less bad for the OP that "not saving anything at all", but that's not why it would be recommended!
    – alephzero
    Jun 29, 2019 at 12:27

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