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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.

  • Any chance they'd be OK with you converting to a 1099 contractor, invoice them and set up your own Solo-401k – Knuckle-Dragger Mar 20 '15 at 1:53
  • @Knuckle-Dragger Sadly, no. :( – Brendan Long Mar 20 '15 at 15:30
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No, you cannot.

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

  • I did some research before asking this, and saw a lot of people talking about discriminatory plans in terms of Highly Compensated Employees, but it didn't seem like that applied to no-HCE's. Did I miss something? – Brendan Long Mar 20 '15 at 15:32
  • +1 @BrendanLong If your employer matches more of your contribution than he does for other employees, he is discriminating in your favor even though you are not a HCE. If your employer were to give you a larger match than others, it would likely disqualify the entire 401k plan, and make for a hugely upset group of fellow-employees who would have to pay taxes on all the tax-deferred contributions and earnings right away, not to mention possible penalties imposed on the employer. – Dilip Sarwate Mar 20 '15 at 17:28
  • Is it possible for an employer to contribute to the 401k via a mechanism that is a "match" contribution? Is it possible to just negotiate a portion of salary that does directly to the 401k? And so avoid the regulations related to non-discriminatory matching. – Raze Mar 20 '15 at 18:13
  • @Raze no, you can do post-tax contributions if the plan allows it, but the OP's intention is to defer the tax so that wouldn't help much. Post-tax contributions cannot be matched. – littleadv Mar 20 '15 at 19:04
  • @littleadv appreciate a citation for this – Yosef Weiner Mar 21 '15 at 18:15
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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.

  • Thanks. Unfortunately, a Roth isn't useful for me because of unusual circumstances (I expect my tax rate to be much lower when I retire), but I voted this up because it's probably useful for other people who will find this question. – Brendan Long May 21 '15 at 19:49
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    A Roth is perfect for you, then. Remember: you have to pay tax on these wages no matter what (unless you did somehow find a way to convince your company to expand their contributions into your 401k). The only question is whether you want to (a) also pay tax on the earnings on that money from now until retirement vs. (b) not pay that tax ever. The rule of thumb about Roth being bad if you're going to have a lower tax bracket in retirement is for deciding how to allocate your yearly IRA/401k limit between traditional & Roth, not for deciding whether to use a Roth vs. use nothing at all. – dg99 May 21 '15 at 20:54
  • You're assuming that I plan to wait until I'm 60 to use this money.. – Brendan Long May 22 '15 at 15:49
  • Yes, given that you mentioned a 401(k) in your question. If you withdraw money early from a retirement plan you'll have to pay taxes and a penalty too. – dg99 May 22 '15 at 16:23
  • If you slowly convert to a Roth before withdrawing, you only need to pay taxes. – Brendan Long May 22 '15 at 22:41
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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?

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