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  • 401K and Employer Bonus

    Does an employer bonus contribution to a 401K count towards my personal $18,000 limit?  I left a job in January 2017 and have a few personal contributions from my old job and a $5300 "Employer Contribution" in a Fidelity 401K.  The Employer Contribution is part of a retirement bonus that we're given - some goes in our regular paycheck and this is the first time they put a portion into our 401K. Now I'm trying to figure out how much more I can put into my 401K at my new job to reach the $18,000 limit for 2017.  I called Fidelity and they said that the $5300 counts toward my $18,000 limit, which doesn't sound right to me.   Picture of Fidelity website attached.  I'm referring to the contribution on 3/15/17.  Thanks!  


  • #2

    Maybe they meant $53k limit?  I dunno.  It pretty clearly looks like an employer contribution, so I don't know why that would ever go towards the $18k limit.

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    • #3

      I’m afraid Fidelity may be right, although I do not know why you weren’t given the option of receiving the bonus in your paycheck instead of having it contributed to your 401k. Since the $5,300 was a bonus to you, treating it as an employer contribution would violate the plan discrimination rules if it were treated as a profit-sharing contribution. That’s just my line of reasoning and I have nothing to back it up except what could very well be faulty logic. 


      If I’m right, though, there is a way to have your cake, etc. Just go ahead and contribute the extra $5,300 to your current plan and see how your prior employer reports the transaction on your W2. If it was counted as an employee contribution, just ask the prior employer to refund the overcontribution. It’s a common request when an employee changes jobs mid-year and qualifies for 2 retirement plans.


      Hoping @spiritrider will step in and explain why I’m wrong, though. I’m with you - it doesn’t sound right to me, either.

      Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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      • #4

        Johanna, I agree with your analysis. Although, something seems strange here. It seems very unusual that plan rules would default to requiring the designation of all of a bonus as an employee deferral.


        Usually, a plan uses the same deferral percentage for normal payroll and bonuses. Some allow a choice between the same percentage or no deferral on bonuses. The latter is what I always selected when it was available. It makes it much easier to plan on reaching the deferral limit at the end of the year so you don't miss out on any matching.


        Some plans allow you to separately designate deferral percentages for payroll and bonuses. I suppose it is possible somehow the OP selected 100% for bonus deferrals.


        Discretionary profit sharing contributions are not common, but they are allowed as long as they pass anti-discrimination testing. So there is that small possibility that Fidelity was wrong about these contributions.

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        • #5

          Thanks for the feedback.  As I said, this was the first time my employer did it this way (we're part of a large physician corporation, based in another state, so not a lot of communication.)  There was never an option to elect how to have the bonus distributed - a portion just suddenly appeared in our 401K with no explanation or payment stub.


           


          When I spoke to the Fidelity rep, I asked if Employer matching counted towards the $18,000 and she said Yes.  So that's why I'm not sure to believe her or not.  Maybe I'll try calling Fidelity again and speaking to a different rep.  And I'll call my previous employer again to try and get more of an explanation.  But I like the idea of just assuming that the $5300 doesn't count towards my personal contribution and contributing an extra $5300 to my current plan.  Thanks for the help!

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