Advice Needed: Maxed Out 401K Contribution/Changed Jobs

[Baseballmom94]

My husband changed employers and joined a new physician group in June 2016. His previous employer contributed the maximum employer contribution amount of $35,000 to his previous 401K in May 2016.    Now the new group is scheduled to begin 401K contributions in November 2016 (10% match with contributions being retroactive to June 2016).

Since he has already maxed out the employer contribution for 2016, we need guidance on handling this situation.  We called out accountant and she advised us to ask the HR department what other options they may offer for this type of situation.  We have a call in to HR but while we are waiting for a response, we are just wondering if anyone on this board else has dealt with this situation before and if anyone could advise us on other options to request of my husband's employer?

Thanks in advance!

[jfoxcpacfp]

The fact that the prior group maxed out the 401k has no bearing on the new employer (assuming they are not related entities). Your DH can have up to $53k contributed to his new account at his new job, also. Note, however, that he can contribute the annual $18k employee discretionary contribution only once per year across all plans. That means the $53k would have to come from % matching using whatever formula is available in the new plan. This presumes he already contributed the full $18k at his prior job, of course.

[Baseballmom94]

Thanks very much for your response, Johanna.  My husband contributed $14,777 to his previous 401k in 2016 so he will be eligible to contribute an additional $9223 this year. He is over 50 so he can do the additional $6000 catch-up contribution.

I'm confused because our accountant's advice differs from your advice. She stated that the total of $53,000 is per individual per year, no matter how many employers a person has in one year.   The two employers are completely different entities, in his case.

Could you please clarify this rule?  Thank you.

[litovskyassetmanagement]

I believe your accountant is 100% correct.  For multiple employers one after another the limit is $53k.  Your husband can still make the $6k catch-up contribution if he hasn't done so already.  Multiple $53k limits apply to simultaneous employers, so if he was working for two companies simultaneously, he could potentially have $53k contribution into each plan (with $18k in salary deferral in common between both plans).

EDIT: I asked for a second opinion, and it turned out I was wrong:

"...[I]f it is in fact a new employer (and not just a transfer to a different department in the same hospital, etc.) then

he could theoretically max out his EMPLOYER (not the 401k portion) again.  Which means if it was a profit sharing only plan

he could get $53k."

[jfoxcpacfp]

Baseballmom94 wrote:

Thanks very much for your response, Johanna.  My husband contributed $14,777 to his previous 401k in 2016 so he will be eligible to contribute an additional $9223 this year. He is over 50 so he can do the additional $6000 catch-up contribution.

I’m confused because our accountant’s advice differs from your advice. She stated that the total of $53,000 is per individual per year, no matter how many employers a person has in one year.   The two employers are completely different entities, in his case.

Could you please clarify this rule?  Thank you.

Click to expand...

I have not been able to find any regs stating that the multiple employer limit is only for simultaneous employment. Not saying that Kon is wrong, just that I can find nothing to back up his statement. 401k contributions are not reported by date of employment, so I'm not sure how this could even be tracked by the IRS. Otoh, it makes sense that they might impose this limit to prevent stacking up 401k contributions if one hops to different jobs, but I still cannot find anything prohibiting it. I will be happy to stand corrected if Kon can produce this reg, as it is important to know and I don't believe it has been addressed by WCI in any multiple 401k posts, at least that I can find. And you do not want your DH to have an overcontribution for 2016!

Your accountant's advice that the total is $53k per individual per year is not correct. Not sure why Kon said she is 100% correct. The $18k (+ $6k in your case) is the total elective deferral across all employers, but not the $53k. Multiple unrelated employers, multiple $53k limits. Of course, after the first $24k of elective deferral, it is more difficult to fill out the 401k as most employers aren't that generous.

[Baseballmom94]

Thank you, Johanna and Kon, for weighing in on this issue. It seems to be a confusing issue that must not occur often since I also have not found that WCI has ever addressed 401K limits with multiple employers within a year.

We definitely did not expect my husband to change groups in the middle of this year but he finally hit the point of burnout with night shifts and found a new position with a group which limits those shifts and is more concerned with physician wellness and a work-life balance philosophy.

Anyway, this is great news that we can save even more into his retirement account this year so thank you both for clarifying this rule!

[Zaphod]

WCI has actually addressed this a couple times, but not sure if its embedded within a larger topic or some other thing where its hard to find.