Could my employer give me a raise in terms of employer 401k contributions instead of salary?

Question

Personal contributions to a 401(k) are capped at $18,000 per year, but personal + employer contributions are capped at $52,000 per year, and I'm already maxing out my 401k.

Assuming I was eligible for a raise sometime soon, could I ask my employer to just increase their contributions to my 401k instead? Alternatively, could I ask them to reduce my salary and increase their contributions to my 401k? Or could they increase my matching percentage?

I know that there are requirements that a company not allow the highest-paid employees to contribute more than the lowest-paid employees, but assume that I'm not a Highly Compensated Employee.

Answer 1

No, you cannot.

401k must not be discriminatory, i.e.: you cannot have different matching for different employees.

Answer 2

You might want to bring this fancy new IRS rule to your employer's attention. If your employer sets it up, an After-Tax 401(k) Plan allows employees to contribute after-tax money above the $18k/year limit into a special 401(k) that allows deferral of tax on all earnings until withdrawal in retirement.

Now, if you think about it, that's not all that special on its own. Since you've already paid tax on the contribution, you could imitate the above plan all by yourself by simply investing in things that generate no income until the day you sell them and then just waiting to sell them until retirement. So basically you're locking up money until retirement and getting zero benefit.

But here's the cool part: the new IRS rule says you can roll over these contributions into a Roth 401(k) or Roth IRA with no extra taxes or penalties! And a Roth plan is much better, because you don't have to pay tax ever on the earnings. So you can contribute to this After-Tax plan and then immediately roll over into a Roth plan and start earning tax-free forever.

Now, the article I linked above gets some important things slightly wrong. It seems to suggest that your company is not allowed to create a brand new 401(k) bucket for these special After-Tax contributions. And that means that you would have to mingle pre-tax and post-tax dollars in your existing Traditional 401(k), which would just completely destroy the usefulness of the rollover to Roth. That would make this whole thing worthless.

However, I know from personal experience that this is not true. Your company can most definitely set up a separate After-Tax plan to receive all of these new contributions. Then there's no mingling of pre-tax and post-tax dollars, and you can do the rollover to Roth with the click of a button, no taxes or penalties owed.

Now, this new plan still sits under the overall umbrella of your company's total retirement plan offerings. So the total amount of money that you can put into a Traditional 401(k), a Roth 401(k), and this new After-Tax 401(k) -- both your personal contributions and your company's match (if any) -- is still limited to $53k per year and still must satisfy all the non-discrimination rules for HCEs, etc.

So it's not trivial to set up, and your company will almost certainly not be able to go all the way to $53k, but they could get a lot closer than they currently do.

Answer 3

You can always ask. The answer is likely to be "no" -- the company is probably not set up to be able to tweak that number on a case by case basis. I'm not sure whether there are regulations which might kick in, as well; these plans are regulated to prevent abuse and that tends to make doing anything unusual difficult. Find another tax-deferred/tax-advantaged investment and route the money there?