PatriotsReign

We have a law in this country that severely limits how much you can put into a 401K based upon your salary. This law states that if you make over $110K/yr, you can only contribute 2% more the average contribution level of your company.

For example, if your company average is 4% and you make over $110K, then you can only contribute 6% annually.

WTF!!! Is this supposed to "even the playing field" or what? Does our gov't feel sorry for those who only want to contribute 4%?

Now keep in mind that if you made 50-$60K all your life and suddenly get a job that pays $112K, you immediately get your contributions cut. The law doesn't take into consideration how many children you may have, how much (or little) you have in your 401K or the cost of living in your area.

A person making $106K can contribut about $17K/yr and the person making $112K is only allowed to contribute $6K/yr. What a joke our lawmakers are!

http://www.irs.gov/newsroom/article/...187833,00.html

__________________
"No one walking this earth knows what is truly righteous"

Mrs.PatsFanInVa

I don't suppose you have a link to this law, do you?

PatriotsReign

Highly Compensated Employees (HCE)

"To help ensure that companies extend their 401(k) plans to low-paid employees, an IRS rule limits the maximum deferral by the company's "highly compensated" employees, based on the average deferral by the company's non-highly compensated employees. If the rank and file saves more for retirement, then the executives are allowed to save more for retirement. This provision is enforced via "non-discrimination testing". Non-discrimination testing takes the deferral rates of "highly compensated employees" (HCEs) and compares them to non-highly compensated employees (NHCEs). An HCE in 2008 is defined as an employee with compensation of greater than $100,000 in 2007 or an employee that owned more than 5% of the business at any time during the year or the preceding year.[8] In addition to the $100,000 limit for determining HCEs, employers can elect to limit the top-paid group of employees to the top 20% of employees ranked by compensation.[8] That is for plans whose first day of the plan year is in calendar year 2007, we look to each employee's prior year gross compensation (also known as 'Medicare wages') and those who earned more than $100,000 are HCEs. Most testing done now in 2009 will be for the 2008 plan year and compare employees' 2007 plan year gross compensation to the $100,000 threshold for 2007 to determine who is HCE and who is a NHCE.

The average deferral percentage (ADP) of all HCEs, as a group, can be no more than 2 percentage points greater (or 150% of, whichever is less) than the NHCEs, as a group. This is known as the ADP test. When a plan fails the ADP test, it essentially has two options to come into compliance. It can have a return of excess done to the HCEs to bring their ADP to a lower, passing, level. Or it can process a "qualified non-elective contribution" (QNEC) to some or all of the NHCEs to raise their ADP to a passing level. The return of excess requires the plan to send a taxable distribution to the HCEs (or reclassify regular contributions as catch-up contributions subject to the annual catch-up limit for those HCEs over 50) by March 15 of the year following the failed test. A QNEC must be an immediately vested contribution."

401(k) - Wikipedia, the free encyclopedia

__________________
"No one walking this earth knows what is truly righteous"

mcgraw_wv

Honestly it makes sense to me. And to be honest, I don't think we should allow for any tax free money for retirement. You should not have to be bribed into saving for your retirement.

As well, there are plenty of studies that show 401k only benefits the Rich and not the middle class worker. 401k is a great benefit to those who's 4% is a lot of money, but more people's 4% is a small 2 - 3k a year.

So the reality is the Higher paid employees everywhere get even more money from their employers via matching, and get even more money tucked away for retirement tax free.

Why not remove the complexity, reduce the tax rate 1% and remove the tax free status of 401ks.

Overall everyone is better off as we pay less tax, and their is no percentage based tax saving which dramatically favors those who make a lot more money.

PatriotsReign

Because of course we don't want to make people who make less feel bad, do we?

That's the whole incentive to make MORE! Because you can SAVE more! And making 401 contributions non-taxable incents everyone to save more for retirement.

Making more isn't unfair to anyone....you do know and understand this, don't you?

__________________
"No one walking this earth knows what is truly righteous"

BelichickFan

401Ks themselves are a separate issue but I think this particular exception sucks (although it doesn't affect me). There is an IRS annual cap of $16.5K that you can contribute and that cap should suffice, regardless of the average of your workplace.

Mrs.PatsFanInVa

Unless of course you're hiding it and refusing to pay income taxes on it....in which case it's grossly unfair to everyone else who plays by the rules.

efin98

You didn't answer his question.

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"As long as we have Belichick, I always think that we're going to be just fine."...Tom Brady, in reference to his coach.

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Mrs.PatsFanInVa

It wasn't me he was asking.

efin98

Sorry for the mistake.

__________________
"As long as we have Belichick, I always think that we're going to be just fine."...Tom Brady, in reference to his coach.

“It is what it is, but it ain’t what you think.”...Brandon Spikes