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My understanding is that the max individual contribution for 2020 is $19,500.

If employer match is 100%, that gets us to a total of $39,000.

How does one max out the combined employer/employee contribution to $57,000?

Where is that extra $18,000 potentially coming from?

Source: https://www.investopedia.com/retirement/401k-contribution-limits/

  • 3
    this is assuming the employer matches 100% of the employees contribution. The employer is free to contribute how much they want, so that that could be 200% or 500% of what the employee contributes. It's all up to how the employer decides to set up their 401(k) match. (good luck finding an employer that will contribute that much though) – rhavelka Aug 14 '20 at 20:00
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Employers can offer matches more than 100%, and can also offer contributions that are not tied to your contributions. This increases participation without forcing employees to contribute, which helps employers pass the "highly compensated employee" test and allow all employees to fully participate.

For example, an employer may contribute 5% of your salary (sometimes called a "Safe Harbor" contribution), plus a 100% match up to 5% of your salary. So if an employee makes $390k, they can contribute 5% (which results in the individual max of 19,500), the employer matches 5%, and provides another 5% for a total of $58,500. The employer contributions would be limited to 37,500 due to the total contribution limit.

Obviously you can change those numbers for different levels of salary and contribution levels.

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I think the currently accepted answer misses the most typical way that larger contributions can be made. The $19.5k limit applies to employee pre-tax and Roth contributions. Employee after-tax contributions are not subject to this limit, and can be used to reach the $57k total. After-tax contributions sound like a bad deal (contributions taxed going in and earnings taxed coming out), but in some 401(k) plans they can be converted to Roth balances, known as a mega backdoor Roth.

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    Pre-taxed contributions may not be taxed coming out, NDIRAs aren't. – Harper - Reinstate Monica Aug 15 '20 at 13:48
  • +1 this is the real answer. Additionally the 57k limit is per employer plan, while the 19.5k limit applies per person. If you have multiple employers allowing after-tax contributions, you could put in >100k in one year. – obscurans Aug 15 '20 at 14:52
  • @Harper What are NDIRAs? – nanoman Aug 15 '20 at 18:27
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    @Harper Edited to clarify that earnings on after-tax 401(k) contributions are taxed coming out. This is the same as non-deductible IRAs. – nanoman Aug 15 '20 at 19:31
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    @PeterGreen Except, to quote from my answer to a different but related question, the earnings in an ordinary taxable account are taxed "at favorable rates for qualified dividends and long-term capital gains; the latter (capital gains) will be deferred anyway until investments are sold (and this deferral can be even longer because there are no RMDs)." – nanoman Aug 16 '20 at 18:46
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In addition to the other great answers, allow me to present one from the perspective of a self-employed individual:

I am a self employed individual with a Solo 401(k). I am able to make contributions as both employee and employer even though the contributions are coming from basically the same pool of money.

As an employee, I can contribute up to $19,500 dollars. That's the same as as in the other answers. That's $37,500 short of the limit you're asking about.

As my own employer, I can also contribute up to a certain limit. I need to subtract one half of my self employment tax and also subtract my employee 401k contributions from my total compensation - then I can contribute up to 25% of that amount to the 401k. To make a $37,500 employer contribution I would (very very roughly) need to be earning $200,000 or more a year.

See this document from the IRS for more information on how the limits of the employer portion are calculated.

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There are several different types of contributions an employer can make to a 401(k), but the main types are "matching" and "profit sharing". Matching is tied to contributions the employee makes, while profit sharing contributions are independent of that. The limiting factor is the rule that the total employer contribution to your 401(k), matching and profit sharing combined, cannot exceed 25% of your salary.

With the current maximum being $57,000, and supposing you make the maximum individual contribution $19,500, you still need the company to contribute (in one way or another) $37,500 to your 401(k), which means you have to make at least $150,000 in salary. And have an employer with a very, very generous company 401(k) contribution.

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The modestly compensated "average Joe" can also get near that number by contributing the max $19,500, getting the 100% employer match of $19,500, the 5% employer match of say $4000... (we're up to $43,000 so far)...

...and then, make it a Roth 401(k) instead of a traditional.

A dollar in a Roth 401(k) is worth more than a dollar in a traditional, because you're bot having to bring the tax money into the retirement account. The taxes are paid externally to the account, and the money in it is all yours. If you're in a combined (state + Federal) tax bracket of 28%, $1.00 in a Roth is worth $1.39 in a Traditional.

(After you pay 28% taxes on $1.39, you are left with $1.00).

So that $43,000 Roth contrib is as good as a $59,722 Traditional contrib.


"But wait, Harper! The employer contrib doesn't go into a Roth 401K, it goes into a traditional! That is to say, the employer doesn't pay the tax for you!"

Right, you have to pay that tax, by doing a Roth conversion inside the 401K. If they contrib'd $23,500, you convert that to Roth.

The $23,500 is transmuted into Roth funds inside the 401K. However, the taxes on this event are paid outside the 401K. Get it? You pay $6,580 in tax, but your 401K becomes worth $6,580 more because it is now post-tax money. It's a left-handed way of contributing $6,580 additional into the 401(K). Just instead of writing the check to Fidelity today and a check to the IRS at retirement, you write a check to the IRS today and the value pops into your account. It's not a free lunch, but it provides the high dollar value of contrib that you are seeking.

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    All the company match funds are pre-tax. They aren't Roth. – mhoran_psprep Aug 15 '20 at 14:17
  • @mhoran so convert them. Edited. Remember OP's goal is to max contribs not avoid tax. – Harper - Reinstate Monica Aug 15 '20 at 19:15
  • The question isn't "how do I get an effective contribution as high as the limit?" it's "in what scenario is the limit reached?" Your scenario does not reach the limit. (Using your tricks you could have "effective" contributions significantly higher yet) – Ben Voigt Aug 19 '20 at 20:23
  • @BenVoigt Well I could make my answer say that, simply by copy-pasting the accepted answer. My goal was to try to add something new. But that seems poorly received. Any idea why? – Harper - Reinstate Monica Aug 19 '20 at 20:27
  • This seems like a good answer to a different question. – Ben Voigt Aug 19 '20 at 20:40

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