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401K Deferral Question

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JimW58
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401K Deferral Question  Reply with quote  

Hi All,

My wife's employer caps her 401K deferrals at 15% of her salary. She gives the 15% max but it isn’t enough to reach the $18,000 max for annual deferrals. She is over 50 but also not allowed to make “catch up contributions” due to the fact that she hasn’t reached the $18,000 limit. She wants to put more money into her 401K but cannot do so due to these restrictions. It seems these restrictions are extremely unfair to those employees who cannot max out the $18,000 deferral limit with a strict 15% cap on deferrals. Are these restrictions allowed by law? Shouldn’t she be able to contribute more? It seems completely unfair to restrict her deferrals in this manner.
Post Thu Nov 09, 2017 5:15 pm
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oldguy
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Are these restrictions allowed by law? Shouldn’t she be able to contribute more? It seems completely unfair to restrict her deferrals in this manner.


As I recall (I started my 401k in about 1982) companies were required to submit a Plan to the govt' that described how they would comply with the gov't Law. Companies had to stay under/within the 401k Law limits - but they could further restrict the guidelines.

That was before there were "matches", "catch ups", etc - so not much to change. Many companies added a high % limit (in addition to the gov't $ max such as $18,000). The idea was that the company wanted employees avoid over-investing, didn't want employees to get themselves into trouble by over-extending themselves and then owing penalties. Those problems didn't happen, in fact the opposite did, employees didn't invest much. In the 1980s, less than 35% participated - and very few contributed the max.

But I don't know the answer to your question - ie, I know that the % limit existed years ago - but don't know if those rule rules were ever removed.
Post Thu Nov 09, 2017 9:27 pm
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