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My employer tells me that they will match 25% of my contributions up to 8%. I guess that means 8% of my gross salary is eligible for a 25% match.

I'm starting contributions from Oct 1 and they have a 15% cap. They are saying they want to cap my contributions at 15% of my paychecks, which will mean I'll contribute far less this year in total than 8% of my annual salary.

Am I allowed to say, hey, I really want to contribute more than 15% in Q4 to get closer to 8% of the total allowed for the maximum match.

Am I also allowed to say, hey I really want to contribute more than 15% in Q4 to get closer to the $17.5k max allowed by the IRS?

Edit added: I have been with this company for more than a year, I have only become eligible for 401k in Q4 2014 (hire date was sep 2013, became eligible after 1st anniversary).

Edit added: They've actually now come back and told me I can contribute more than 15% for the last three paychecks this year, which I think is great by them since it helps get towards the IRS $17.5k max. Still not totally clear how this affects my employer match (which is apparently calculated based on the total contributions in the quarter).

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    There are IRS rules. Those rules are often minimum/maximum type rules, but employers can do what they will so long as it's on the right side of regulations. My old employer had a 75% limit. Your's is 15%. You need to ask your HR dept for the rules for what you propose to do. – JTP - Apologise to Monica Nov 21 '14 at 19:18
  • What sort of company only allows you to join their 401k after one year?! I've never heard of that. And clearly this punishes employees who join after midyear. You might have negotiated an equalizing payment when you joined. – smci Nov 22 '14 at 1:33
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    @smci that's part of the non-discrimination rules. If you have a 401k - all employees who worked for at least a year must be allowed to join, but if you're a small business who wants to have "benefits" but limit the employee's ability to actually benefit from them as much as you can - you'll only allow the bare minimum required by law. I.e.: employees will be allowed to join 401k only after working for at least a year. – littleadv Nov 22 '14 at 3:02
  • Oh, didn't realize the one-year lag was prescribed by IRS law. – smci Nov 22 '14 at 15:13
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    @smci The one-year lag is the maximum allowed by law. Better employers will allow employees to join the 401(k) sooner than that. – stannius Jun 24 '15 at 18:40
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I think you won't be able to get any additional match at this point. You can request that HR up the percentage that you are allowed to contribute. Whether this can change will be up to the company you work for and the 401k servicing company they provide. The IRS allows you to contribute more than 15% of your paycheck, but your company has the right to limit the contribution amount to 15% of your paycheck.

Also, you say that "I'll contribute far less this year in total than 8% of my annual salary." implying that because you start 10/1 you'll not be able to get as much match.

If you make $100k/year and start 10/1 you should earn $25k from the company. The company is matching 8% of the full $25k that you earned from the company that year. They are fully allowing you the match they promised.

On a more general note, company 401k matches are typically done on a per paycheck basis. If you get a match on 8% of your contributions, you can't contribute 0% one paycheck and 16% the next paycheck to get the match. Because of this, you can end up in a situation where you miss out on the company match by contributing $1000 per paycheck and hitting the annual max in contributions without getting the full match.

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    +1 for noting that he is not missing any match. The match is on what you contribute from your salary. You can't just dump in money out of your own pocket and have that matched too. – BrenBarn Nov 21 '14 at 19:26
  • I've been with the company more than a year, only just now became eligible for 401k and also, the company has informed me that they total the contributions in the quarter to calculate the match. From what you say, this sounds like an unusual arrangement. – Brad Thomas Nov 21 '14 at 19:43
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    It does sound like an unusual arrangement and a nice one. Other unusual arrangements include just depositing x% of your salary after the year passes or each paycheck. You should ask the company to up the % contribution amount. I think that it's a long shot but probably worth trying. JoeTaxpayer mentions a 75% max contribution at one company. Now I have a 60% max contribution and in my past, I've had a 15% contribution. – Alex B Nov 21 '14 at 19:53
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There is no government or IRS restriction on the % of salary allowed, only the $17.5k max for 2014.

The 15% cap is either a plan imposed or company imposed policy, most likely to prevent people from top loading their 401k in the first month or two of the year.

They really should relax it towards the end of the year to allow people to hit the $17.5k IRS max, but you would have to speak with your company HR department about it. I personally feel that these artificial company imposed policies are unfair to those employees making lower salaries than those at the top, perhaps you could approach that angle with your HR dept.

EDIT:

I just realized (by re-reading your question) that you are attempting to do this so that you get more of the match money from your company. This won't work, the company is only going to match up to 8% of your salary for the time you are earning paychecks. Even if you contribute the full $17.5k.

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  • How do you see this sort of policy as impacting low salaried employees more than those at the top? I see it the other way around. Bob Broompusher is much less likely to be able to frontload his 401k contributions to get a full years worth of employer match in a short period of time than Phil Phb afterall. – Dan Is Fiddling By Firelight Nov 21 '14 at 20:56
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    It hurts low salaried employees because the 15% cap prevents them from reaching the IRS max. Married couple, but only one has 401K. Each makes 50K. Decide to have the one with 401K try to put in the max, but 15% of 50K is $7500. – mhoran_psprep Nov 21 '14 at 23:36
  • There is actually a restriction. It must be no more than 100% salary (i.e.: you cannot deposit money from other sources), and the total must not exceed $51K (including match/profit sharing). There are also rules related to HCE, which is probably what's in play here. – littleadv Nov 22 '14 at 3:04

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