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Could/Should You Contribute More Than $18k to 401k?


"Is there a limit to how much I can defer to my 401(k) plan?  I'm starting a new job and they match up to 4% of my contributions on a 401(k) plan. I will obviously do the 4%, but I will also want to do more. Is there any limit to how much I can put away?"

You are absolutely right that you do want to save a minimum of 4% to your 401(k) if your employer matches that 4%.  Congratulations on also being in a position to save more than that and perhaps even contribute up to the max.  So what is the max?

There are actually 4 maxes that you need to be aware of.  The first two are the most common based on your age.  If you are less than 50 years old, you can contribute a maximum of $18000 on any combination of pretax or Roth contributions.  If you are 50 years or older, then your maximum contribution on any combinations of pretax or Roth contributions is $24000.  

The third and fourth maximums can sometimes be confusing and aren't very well known because most people are not able to come close to them given the options available in their 401(k)'s.  This third maximum states that all contributions to a 401k are limited to $54000 (in 2017) if you are under 50 or $60000 (in 2017) if you are 50 years or older.  It is fair to wonder why they even have these maximums in place if you can only contribute $18000 (or $24000) based on the maximums mentioned above.

There are two other ways money can get into a 401(k) and you mention one of them in your question.  This is the employer match.  The other way is through "after tax" contributions if a plan allows it.  I am beginning to see more and more plans offering "after tax" contributions than ever before.  There are some sophisticated strategies that few are taking advantage of with these "after tax" contributions.  If you are maxing out your 401k and have "after tax" contributions as an option in your 401k, you may have some of these strategies available to you.  I strongly encourage you to take time to meet with me to discuss whether or not these are right for you.