401k Match "Limit" - FYI

[DermRes]

Hi all,

 

Been reading the site for a long time, and recently learned something that I had never known/come across before, wanted to share so other people were aware too.

 

For high-earning docs (>$270,000 for 2017), employer 401k match is limited to using an upper limit that the IRS sets each year when they calculate your match.

 

For example, my employer matches 50% of my contribution up to 3% of my total compensation. I put in $18,000 and was expecting to get a $9,00 match, BUT recently notice that the match stopped at $8,100.

 

When I asked why, I learned of the above rule, which basically says the formula uses $270,00 as the upper limit (so 3% match of $270,000 = $8,100) instead of using my total (higher) salary.

 

IRS link/explanation here:

https://www.irs.gov/retirement-plans/401k-plans-deferrals-and-matching-when-compensation-exceeds-the-annual-limit

 

 

 

[Jaqen Haghar MD]

It's an interesting rule, but if your income is greater than $270,000, I'd be asking myself why I'm working at a place where there isn't $54,000 total put into my 401K by year's end.  Without knowing your specific situation....  Perhaps there are other retirement vehicles they/you use to accomplish this?

 

[litovskyassetmanagement]

Jaqen Haghar, MD wrote:

It’s an interesting rule, but if your income is greater than $270,000, I’d be asking myself why I’m working at a place where there isn’t $54,000 total put into my 401K by year’s end.  Without knowing your specific situation….  Perhaps there are other retirement vehicles they/you use to accomplish this?

 

Click to expand...

Not every plan will allow you to do that.  Even many employers with multiple plans won't do profit sharing in a 401k plan, and instead they offer 457b plans which are nowhere near as good as 401k with profit sharing.  Only group practice plans typically allow $54k into a 401k plan, and even then only if the staff demographics is favorable.

[Jaqen Haghar MD]

Kon Litovsky wrote:

Not every plan will allow you to do that.  Even many employers with multiple plans won’t do profit sharing in a 401k plan, and instead they offer 457b plans which are nowhere near as good as 401k with profit sharing.  Only group practice plans typically allow $54k into a 401k plan, and even then only if the staff demographics is favorable.

Click to expand...

True.  An important consideration.  Any suggestions on how to get it maxed out if you are stuck in this case?   Pick up 1099 income and solo more 401K?  Other options?  As more corporations convert doctors to employees this is likely to become even more common.

[Lithium]

Jaqen Haghar, MD wrote:

Kon Litovsky wrote:

Not every plan will allow you to do that.  Even many employers with multiple plans won’t do profit sharing in a 401k plan, and instead they offer 457b plans which are nowhere near as good as 401k with profit sharing.  Only group practice plans typically allow $54k into a 401k plan, and even then only if the staff demographics is favorable.

Click to expand…

True.  An important consideration.  Any suggestions on how to get it maxed out if you are stuck in this case?   Pick up 1099 income and solo more 401K?  Other options?  As more corporations convert doctors to employees this is likely to become even more common.

Click to expand...

The least employers can do is offer after-tax 401k contributions.  I probably wouldn't work for a corporation that didn't offer that.

[litovskyassetmanagement]

Jaqen Haghar, MD wrote:

Kon Litovsky wrote:

Not every plan will allow you to do that.  Even many employers with multiple plans won’t do profit sharing in a 401k plan, and instead they offer 457b plans which are nowhere near as good as 401k with profit sharing.  Only group practice plans typically allow $54k into a 401k plan, and even then only if the staff demographics is favorable.

Click to expand…

True.  An important consideration.  Any suggestions on how to get it maxed out if you are stuck in this case?   Pick up 1099 income and solo more 401K?  Other options?  As more corporations convert doctors to employees this is likely to become even more common.

Click to expand...

If you work in a group practice, looking at the plan design can be the first step.  Maybe plan design can be improved in different ways to allow for higher contribution.  For example, a higher match part of which is subject to a vesting schedule vs. plain safe harbor match.  Many group practice plans are profit sharing only, so that can get expensive.  Switching to a 401k with profit sharing can help with making larger contributions for the partners.  As long as you are a partner, there are different things that can be considered.  Adding a Cash Balance plan might also help increase contribution, but again this would require having a really good design study to make sure this is cost effective.

If you are not a partner, only 1099 income is the way to go.  Larger employers are not interested in making higher contributions, it is as simple as that.

[litovskyassetmanagement]

Lithium wrote:

Jaqen Haghar, MD wrote:

Kon Litovsky wrote:

Not every plan will allow you to do that.  Even many employers with multiple plans won’t do profit sharing in a 401k plan, and instead they offer 457b plans which are nowhere near as good as 401k with profit sharing.  Only group practice plans typically allow $54k into a 401k plan, and even then only if the staff demographics is favorable.

Click to expand…

True.  An important consideration.  Any suggestions on how to get it maxed out if you are stuck in this case?   Pick up 1099 income and solo more 401K?  Other options?  As more corporations convert doctors to employees this is likely to become even more common.

Click to expand…

The least employers can do is offer after-tax 401k contributions.  I probably wouldn’t work for a corporation that didn’t offer that.

Click to expand...

That won't work for most employers.  It is just as expensive as profit sharing, so if you have employees, after-tax won't work any better than profit sharing, thus no employers do it (unless it is a very large plan where after-tax is done mostly by rank and file).

[justlearning]

This may may not the be the primary account for the contribution and match. My spouse`s employer offers similar. Other than regular 403B which is 18K. 401A plan max is contribution is up to $8100 for high income earners.

[bikesandbeer]

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[okayplayer]

My wife is an employed internal medicine (outpatient doctor) for a company that employees maybe 80 doctors in addition to owning a lot of ancillary services. They offer **0** 401(k) match, which I find astonishing. How far out of the realm of normal is this?

We are in a part of the country where PCPs are always in need and they are always recruiting. I suggested my wife mention that perhaps if they improved their benefits they might have better retention and recruitment.

[litovskyassetmanagement]

okayplayer wrote:

My wife is an employed internal medicine (outpatient doctor) for a company that employees maybe 80 doctors in addition to owning a lot of ancillary services. They offer **0** 401(k) match, which I find astonishing. How far out of the realm of normal is this?

We are in a part of the country where PCPs are always in need and they are always recruiting. I suggested my wife mention that perhaps if they improved their benefits they might have better retention and recruitment.

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They can do that if all doctors are HCEs, and if here is NHCE staff, this can be done if most participants making salary deferrals.  This is actually not normal, but I have seen this even with some employers (smaller hospitals/universities). Usually there is some sort of match, so this says something about the company.  Yes, they should not only ask for a match, but potentially for some profit sharing as well. I bet the funds have high expense ratios as well because this gives a break to the company on admin costs.

[okayplayer]

You would be correct.

[litovskyassetmanagement]

okayplayer wrote:

You would be correct.

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Management just does not care.  This is why only practices that are run by doctors for doctors make the big changes and set up the best/lowest cost plans.  I bet they are using some broker who's friends with the owners, or some such thing - this is very common.  Very difficult to dislodge plan providers like that.  So I think some lobbying effort is in order.