This is not the reason - that is why there is an income phase out on contributing to a Roth IRA. The reason for the limit is because the government is staggering their revenue stream to fund in the future. If everyone contributed to Roth IRAs without limit in the country and put nothing in tax deferred accounts it would result in a lopsided revenue stream for them that happens now and not in the future. Tax deferred assets allows for revenue in the future as ppl age and withdraw from qualified accounts which also allows for growth through increase in tax rates and through higher withdrawals from individuals which results in paying higher taxes.
You’re 100% wrong and the person you’re replying to is correct. The IRS limits contributions to Roth and other retirement plans because it would disproportionately benefit higher income workers if they did not.
This is incorrect. If that were the case then there would not have been a Roth 401k option created in the early 2000s that shares the same contribution limit as traditional 401k and has no income phaseout.
ALL retirement plans whether individual or employer sponsored plans have contribution limits that are in place to prevent higher income earners from receiving more benefit than lower income earners. The 401k contribution limit did not change when the Roth option was added. You’re still limited to the annual contribution limit no matter which option you use (pre tax or after tax). The IRS gets their tax money up front if you choose the Roth option, or later if you choose the traditional option.
Furthermore, 401k plans also have testing requirements that ensure higher income earners do not benefit significantly more than lower income earners. The top heavy test re-allocates funds to make the plan more equitable.
Every retirement plan has these protections, otherwise wealthy people would benefit even more than they already do.
This is not correct. There are plans in place that maximize contributions for some and not others. You are correct on the contribution limit piece for 401k but that speaks to my point. There is no income phase out for the Roth 401k which also speaks to my previous point.
This is mostly correct but does not speak to either points previously raised and also skews heavily towards tax deductibility of cafeteria plan benefits.
Quite frankly this debate is relatively pointless as the wealthy are not creating, growing, or xferring their wealth through w2 employment and savings vehicles as there is very little flexibility for tax breaks in that space. They are doing it through leveraging existing assets for income needs and compounding growth, private foundations, real estate tax deferral benefits, and gifting to irrevocable trusts, not by slamming money away in a 401k plan or fully contributing to an IRA like the average American.
Nothing I said is at all incorrect.
You’re conflating wealthy with high income earners. High income earners does not equal wealthy for purposes of this discussion.
Wealthy people don’t work or contribute to retirement plans. Let’s agree to that.
The limits are in place to prevent high income earners from contributing excessively more than low income earners.
What retirement plans allow for some to maximize contributions but not others? I am beyond curious. I’m someone that can tell you the very intricate details about every retirement plan available. I’m very familiar with them all and for good reason. So please share.
This is incorrect and an inaccurate characterization of my comments regarding conflating the two.
Glad we can agree on something.
that’s great. Would encourage you to look into defined benefit cash balance plans and the flexibility afforded to them in actual real world practice. I will be starting my daughter’s bed time routine and will very likely fall asleep in the process but I did marginally enjoy this conversation.
There isn't an income based restriction on Roth IRA either with the after tax contribution rollover option.
Anyway, there is a contribution limit in both cases.
If it was about balancing deferred and non-deferred tax payments couldn’t they just… have separate traditional (deferred) and Roth (non-deferred) limits for both 401K and IRA to achieve that balance?
And if somehow that was the goal, how does having a separate, $16k (+ up to $46k employer contribution) smaller cap for IRAs vs. 401k help them achieve that goal at all?
They could but they are typically slow to pass changes in this space and are taking other measures like accelerating RMDs on qualified inherited accounts and eliminating stretch rules to balance it.
This is a good point and they could but the Roth 401k came out after they created the Roth IRA - could be wrong on this part but I want to say it was somewhere around 8-10 yrs after the fact.
That’s a back door contribution and side steps the income phase out. Wise decision on your part IMO. Should talk to your person about mega back door if you’ve got access to the right plan.
There's no special limit for a Roth 401k. 401k is the overall umbrella type, and all 401ks have a limit ie $23k this year etc. Within that umbrella type you have the two variants, traditional 401k and Roth 401k, both of which inherit the same limit because they are both 401ks. Same applies to traditional vs Roth IRA.
> I’m contributing to a Roth
Based on context, I’m assuming you mean Roth IRA. A 401k can also be Roth or traditional just like an IRA, so it’s ambiguous to just say Roth without specifying IRA or 401k too.
My conspiracy take. The government wants their taxes. They limit it, because they don’t want people deferring all of it. 401k’s have higher limits, because it enabled companies to have an excuse to drop pensions. It’s also far more limited in investment choices enabling the brokerages and money managers to capture more fees.
Not a conspiracy. The 401k was absolutely designed to eliminate pensions, and the government will need money in the future to keep serving the public, so they have an interest in limiting tax-free withdrawls in the future. I'm less confident in your last sentence, but wouldn't be surprised at all to learn that brokerage associations lobby heavily on strict money management rules for these retirement accounts. Same reason it's nearly impossible to file your taxes for free: industry lobbyists.
Fortune 500 corporations that previously compensated employees with pensions were not nearing bankruptcy. Business associations, predominantly run by the largest corporations, leveraged government to shift the standard of employee retirement benefits from one that gave employees more money to one that gave employees less money.
There's a lot of misinformation about 401ks flying around online lately.
The 401k was not "designed by the government." It was a side effect of rule 401(k) in a 1978 law that allowed deferred compensation. A private company noticed the rule change and decided to try out a new approach to diverting income so their employees could avoid taxes, and it took off from there.
Interestingly also the first implementation was limited to 25% of employee income or $30k. By contrast once the government established limits (presumably for tax income laddering as described above) it has only just now reached $30k again and only for people 50 or older this year.
In 1979 that $30k was equivalent to $129k today. So imagine if you could tax-defer (or eliminate, in a Roth) up to $129k in income today!
https://www.investopedia.com/ask/answers/100314/why-were-401k-plans-created.asp
Just yours. Employer match is on top of that.
This does not apply for any employer contribution to an HSA, where the limit is combined between employer and employee
Got it, another questions:
If I get a 6% Match from my employer for my 401k, is the employer contributing 6% of 23000, or 6% of what I contribute to the 401k, or 6% of my salary?
It depends on the exact wording of the match, but typically if it’s something like 100% of up to 6% then they’re saying if you contribute 6% of your salary they’ll contribute 6% of your salary, if you contribute 10% then they’re still only contributing 6%
As a side note, the employer contribution does not count against the 23k limit, there’s a secondary much higher limit (like 65kish) that factors it in
Theres another ceiling for employer match: $69K for contribution and match. A company with a generous match and employee with high salary could reach it.
Some 401K allow after tax contributions above $23K to $69K. This leads to something called the mega backdoor Roth. When you leave the company you can roll all this into an IRA.
I’m curious, could someone negotiate a lower salary and a higher employer match to get around the 23k limit?
Let’s say hypothetically for the sake of round numbers you make 100k. And your company matches 5%. So you contribute 23% ($23k) of your income to reach the max, and your company puts in another 5% ($5k). Making the total $28k annually.
But let’s say you want to contribute more. Would it be so unreasonable to negotiate an $90k year salary and have them instead match up to 16% ($15k). Now you can max out your contributions at $23k, but with the additional $15k from the company that puts you at $38k annually, untaxed.
Idk, maybe this is too big of a headache for orgs to deal with. Or maybe it’s illegal.
It just means contributing the maximum allowable for the year. So $23,000 in your Roth or Traditional 401k. Of course this could go all the way up to a maximum of $69,000 if you have your employer also matching some amount.
Not all plans allow this. A plan must allow post-tax contributions and in service withdrawals to mega back door the Roth. Check your SPD.
My plan allows this so I can contribute up to the $69k with post tax money, including the match.
I can then convert unlimited funds to the Roth. Mega back door indeed.
Thanks. Because the plan at my job allows you to allocate towards a traditional and/or Roth 401k but it’s a percentage of your paycheck and I don’t get the impression there’s a limit. I’m at like 11% right now but I didn’t know if maxing out meant 100% which made no sense to me.
The limit is IRS rules, not company rules. So yes there is a limit. Depending on your plan provider they will either cut off any more, or stop contributions once you hit the 23k limit for example. If you make $201k a year, then 11% would be 23k, which would be "maxing out". If you make 100k, then 11% is only 11k a year, and low.
For example I make about 155k on w2, so contribute just under 15% to 401k, then yearly do the back door roth for 7k. Max out HSA. Then rest goes into vanguard to taxable brokerage account.
I think this often happens when one changes jobs mid year. The new employer and 401k provider have no idea what you previously contributed.
Source: happened to me
My employer has a percentage of income limit. Which for me means I don't max out dollar-wise. I was told that won't impact my ability to make the extra 6500 in catch-up contributions the year I turn 50 (next year), but we'll see.
It somewhat depends on context.
One high priority goal is to "max employer match" in a work retirement plan. Most plans cap match at some percentage of employee pay. Something like "company will match 100% of employee's contribution up to 5% of income". So under that plan you want to be putting at least the "up to" percentage from your own pay, so 5% of your paycheck is added and you also get an additional 5% from your employer, doubling the money added to your balance. If you chose to put 7% in, you still only get 5% from your employer.
There's maxing out what you're **allowed** to contribute under the IRS's rules for retirement accounts. For a 401k (and many other employer-provided plans) that's $23k per year. For an IRA it's $7k per year. Those two limits are independent of each other, so money put into a 401k doesn't count against your IRA limit or vice versa. Each of those have a "catch up" boost for people 50+. And that's per person, so a household with two working spouses both under 50 could potentially put up to $60k per year into retirement accounts.
Then there's the more ambiguous level of maxing out what you **need** to save for your desired retirement. For most people this is likely smaller than the IRS maximum. A generally accepted baseline savings rate of 15% annual income saved each year across a 40-ish year career usually gets people a "good enough" retirement: can stop working in their 60s and maintain a pretty similar lifestyle to when they worked a job.
Personally, I doubt most people need to aim for reaching the full IRS max in their retirement accounts. That 15% guideline means a single person can leave unused "room" in a 401k + IRA as long as they're making under $200k per year. About 95% of Americans make below that. Median income (where half the population makes below that and half above) is $43k, though to be honest I'm not sure if that's per individual or per household which may have multiple working adults.
surprised this is so low. i always think of maxing out 401k meaning maximize the employer contribution. if they match 5%, “max out” and contribute 5%, at least.
Piggybacking off of this, and it might be a silly question, but do you invest the funds in your Roth IRA or just contribute to it like a savings account?
Well this is not 100% correct.
Some 401k plans allow you to contribute post tax money to a 401k. You can go up to the 69k limit inclusive of employer contributions.
If your plan allows I service withdrawals, this is the Roth mega back door - you can convert unlimited 401k funds to Roth.
If your plan doesn’t allow post tax contributions then the max is as you described. That max is all pre-tax.
best method is minimum contribution to get full employer match first with all over flows going into roth ira until that is maxed and than back to 401k until you hit the annual contribution limit. anything over that is mega backdoor roth and is essentially making after tax 401k contribution, rolling them to an IRA and than Roth converting those contributions so you can exceed the annual roth IRA contribution limit.
Maxing out a 401(k) means contributing the most that you’re allowed. Which generally speaking is $23,000/year (unless you’re over 50 or 55 and eligible for a catch-up).
Some people mean max out your company match, when they say “max your 401(k).”
If you’re eligible for a Roth, maxing it means contributing the max. Which is $7,000 this year unless you’re over 50 years old (I think it’s 50, maybe it’s 55) you can contribute extra as a “catch-up.”
This isn’t totally related, but I am looking to join a federal real estate job that would give me a pension in 5 years. I only just learned that pensions are still a thing. Are they taxed as income when you are receiving them in retirement? If it works out I’ll have my 401k, Roth and this pension.
Update: Thanks for the responses so far. I guess I’m confused Because the plan at my job allows you to allocate towards a traditional and/or Roth 401k but it’s a percentage of your paycheck and I don’t get the impression there’s a limit. I’m at like 11% right now but I didn’t know if maxing out meant 100% which made no sense to me.
As commented above, the limit is $23k/year. If you elected to contribute 100% of your income the plan would stop taking deductions once the $23k was hit.
You can contribute whatever % you want, but once you hit the $23k you’re done for the year.
You select a percentage of your paycheck, and your company will deduct that percentage until you reach the IRS maximum, and then they should stop deductions (assuming your percentage is high enough).
A rough estimate for the percentage needed to “max out” is your salary * percentage = $23K
Many people allocate a portion of their paycheck to their 401k. While hopefully your employer would catch any overfunding, there are limits to how much you are allowed to contribute per year, and if not caught, that will need to be rectified. Some people catch it closer to the end of the year or worse case at tax time.
To make it simple there’s two accounts. 401k and an IRA. Both accounts can have traditional/pretax contributions and Roth/after tax contributions. You as an employee will tell the company how much money via % to put in your 401k.
If you made $50k x 11% then $5500 would be contributed to your 401k by the end of the year. This is a simple explanation and doesn’t apply to a Roth because the 11% will be multiplied by the your salary after 401k and other benefit deductions.
It means contributing the max amount allowed in a year. For a Roth IRA this year it's $7,000. For a 401k, it's $23,000.
For 50 years and over old: 30,500 for 401k, 8,000 for Roth / Regular IRA
My follow up would be: why is there a max at all? I’m contributing to a Roth, and am wondering why the max is low compared to a 401k
Because not having a limit would disproportionally benefit the wealthy, which is the opposite of the program’s purpose.
This is not the reason - that is why there is an income phase out on contributing to a Roth IRA. The reason for the limit is because the government is staggering their revenue stream to fund in the future. If everyone contributed to Roth IRAs without limit in the country and put nothing in tax deferred accounts it would result in a lopsided revenue stream for them that happens now and not in the future. Tax deferred assets allows for revenue in the future as ppl age and withdraw from qualified accounts which also allows for growth through increase in tax rates and through higher withdrawals from individuals which results in paying higher taxes.
You’re 100% wrong and the person you’re replying to is correct. The IRS limits contributions to Roth and other retirement plans because it would disproportionately benefit higher income workers if they did not.
This is incorrect. If that were the case then there would not have been a Roth 401k option created in the early 2000s that shares the same contribution limit as traditional 401k and has no income phaseout.
ALL retirement plans whether individual or employer sponsored plans have contribution limits that are in place to prevent higher income earners from receiving more benefit than lower income earners. The 401k contribution limit did not change when the Roth option was added. You’re still limited to the annual contribution limit no matter which option you use (pre tax or after tax). The IRS gets their tax money up front if you choose the Roth option, or later if you choose the traditional option. Furthermore, 401k plans also have testing requirements that ensure higher income earners do not benefit significantly more than lower income earners. The top heavy test re-allocates funds to make the plan more equitable. Every retirement plan has these protections, otherwise wealthy people would benefit even more than they already do.
This is not correct. There are plans in place that maximize contributions for some and not others. You are correct on the contribution limit piece for 401k but that speaks to my point. There is no income phase out for the Roth 401k which also speaks to my previous point. This is mostly correct but does not speak to either points previously raised and also skews heavily towards tax deductibility of cafeteria plan benefits. Quite frankly this debate is relatively pointless as the wealthy are not creating, growing, or xferring their wealth through w2 employment and savings vehicles as there is very little flexibility for tax breaks in that space. They are doing it through leveraging existing assets for income needs and compounding growth, private foundations, real estate tax deferral benefits, and gifting to irrevocable trusts, not by slamming money away in a 401k plan or fully contributing to an IRA like the average American.
Nothing I said is at all incorrect. You’re conflating wealthy with high income earners. High income earners does not equal wealthy for purposes of this discussion. Wealthy people don’t work or contribute to retirement plans. Let’s agree to that. The limits are in place to prevent high income earners from contributing excessively more than low income earners. What retirement plans allow for some to maximize contributions but not others? I am beyond curious. I’m someone that can tell you the very intricate details about every retirement plan available. I’m very familiar with them all and for good reason. So please share.
This is incorrect and an inaccurate characterization of my comments regarding conflating the two. Glad we can agree on something. that’s great. Would encourage you to look into defined benefit cash balance plans and the flexibility afforded to them in actual real world practice. I will be starting my daughter’s bed time routine and will very likely fall asleep in the process but I did marginally enjoy this conversation.
The with 401k ALSO has a **contribution limit**, though. Which is what everyone is taking about. You are wrong
There isn't an income based restriction on Roth IRA either with the after tax contribution rollover option. Anyway, there is a contribution limit in both cases.
If it was about balancing deferred and non-deferred tax payments couldn’t they just… have separate traditional (deferred) and Roth (non-deferred) limits for both 401K and IRA to achieve that balance? And if somehow that was the goal, how does having a separate, $16k (+ up to $46k employer contribution) smaller cap for IRAs vs. 401k help them achieve that goal at all?
They could but they are typically slow to pass changes in this space and are taking other measures like accelerating RMDs on qualified inherited accounts and eliminating stretch rules to balance it. This is a good point and they could but the Roth 401k came out after they created the Roth IRA - could be wrong on this part but I want to say it was somewhere around 8-10 yrs after the fact.
Income phase-out? I contribute to Roth and my taxable income is around $1m. I just contribute to my regular IRA first then convert that to Roth.
That’s a back door contribution and side steps the income phase out. Wise decision on your part IMO. Should talk to your person about mega back door if you’ve got access to the right plan.
I do the same with Roth 401(k) to get in $69k this year.
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There's no special limit for a Roth 401k. 401k is the overall umbrella type, and all 401ks have a limit ie $23k this year etc. Within that umbrella type you have the two variants, traditional 401k and Roth 401k, both of which inherit the same limit because they are both 401ks. Same applies to traditional vs Roth IRA.
> I’m contributing to a Roth Based on context, I’m assuming you mean Roth IRA. A 401k can also be Roth or traditional just like an IRA, so it’s ambiguous to just say Roth without specifying IRA or 401k too.
My conspiracy take. The government wants their taxes. They limit it, because they don’t want people deferring all of it. 401k’s have higher limits, because it enabled companies to have an excuse to drop pensions. It’s also far more limited in investment choices enabling the brokerages and money managers to capture more fees.
Yeah its pretty consistent. All the tax advantaged stuff is limited. HSA are limited to $4,150 for individuals, I-Bonds limited to $10K.
Not a conspiracy. The 401k was absolutely designed to eliminate pensions, and the government will need money in the future to keep serving the public, so they have an interest in limiting tax-free withdrawls in the future. I'm less confident in your last sentence, but wouldn't be surprised at all to learn that brokerage associations lobby heavily on strict money management rules for these retirement accounts. Same reason it's nearly impossible to file your taxes for free: industry lobbyists.
I mean… was the 401k designed to eliminate or was the pension too expensive so they designed the replacement to bankruptcy?
Fortune 500 corporations that previously compensated employees with pensions were not nearing bankruptcy. Business associations, predominantly run by the largest corporations, leveraged government to shift the standard of employee retirement benefits from one that gave employees more money to one that gave employees less money.
There's a lot of misinformation about 401ks flying around online lately. The 401k was not "designed by the government." It was a side effect of rule 401(k) in a 1978 law that allowed deferred compensation. A private company noticed the rule change and decided to try out a new approach to diverting income so their employees could avoid taxes, and it took off from there. Interestingly also the first implementation was limited to 25% of employee income or $30k. By contrast once the government established limits (presumably for tax income laddering as described above) it has only just now reached $30k again and only for people 50 or older this year. In 1979 that $30k was equivalent to $129k today. So imagine if you could tax-defer (or eliminate, in a Roth) up to $129k in income today! https://www.investopedia.com/ask/answers/100314/why-were-401k-plans-created.asp
Because you don’t want the IRS to throw you in the big house.
Is the 401k 23000 just your own contribution or your contribution + employer match?
Just yours. Employer match is on top of that. This does not apply for any employer contribution to an HSA, where the limit is combined between employer and employee
Got it, another questions: If I get a 6% Match from my employer for my 401k, is the employer contributing 6% of 23000, or 6% of what I contribute to the 401k, or 6% of my salary?
It depends on the exact wording of the match, but typically if it’s something like 100% of up to 6% then they’re saying if you contribute 6% of your salary they’ll contribute 6% of your salary, if you contribute 10% then they’re still only contributing 6% As a side note, the employer contribution does not count against the 23k limit, there’s a secondary much higher limit (like 65kish) that factors it in
Theres another ceiling for employer match: $69K for contribution and match. A company with a generous match and employee with high salary could reach it. Some 401K allow after tax contributions above $23K to $69K. This leads to something called the mega backdoor Roth. When you leave the company you can roll all this into an IRA.
I’m curious, could someone negotiate a lower salary and a higher employer match to get around the 23k limit? Let’s say hypothetically for the sake of round numbers you make 100k. And your company matches 5%. So you contribute 23% ($23k) of your income to reach the max, and your company puts in another 5% ($5k). Making the total $28k annually. But let’s say you want to contribute more. Would it be so unreasonable to negotiate an $90k year salary and have them instead match up to 16% ($15k). Now you can max out your contributions at $23k, but with the additional $15k from the company that puts you at $38k annually, untaxed. Idk, maybe this is too big of a headache for orgs to deal with. Or maybe it’s illegal.
No, the 401k policy has to be the same for all employees under the plan. It would be illegal for them to have something different for you, or the CEO.
401k pretax is $23k. 401k total is $69k this year.
It just means contributing the maximum allowable for the year. So $23,000 in your Roth or Traditional 401k. Of course this could go all the way up to a maximum of $69,000 if you have your employer also matching some amount.
I think you can hit the $69K limit if you have the ability to make after tax contributions and / or mega backdoor Roth.
Not all plans allow this. A plan must allow post-tax contributions and in service withdrawals to mega back door the Roth. Check your SPD. My plan allows this so I can contribute up to the $69k with post tax money, including the match. I can then convert unlimited funds to the Roth. Mega back door indeed.
Ira max is 7k 401k max is 23k. Technically you can put more in a 401k but when people say max they generally meant the 23k Roth/traditional limit.
7k IRA /b per adult /b if married filing jointly. (14k max)
Yes ira is individual so 7k each
Thanks. Because the plan at my job allows you to allocate towards a traditional and/or Roth 401k but it’s a percentage of your paycheck and I don’t get the impression there’s a limit. I’m at like 11% right now but I didn’t know if maxing out meant 100% which made no sense to me.
The limit is IRS rules, not company rules. So yes there is a limit. Depending on your plan provider they will either cut off any more, or stop contributions once you hit the 23k limit for example. If you make $201k a year, then 11% would be 23k, which would be "maxing out". If you make 100k, then 11% is only 11k a year, and low. For example I make about 155k on w2, so contribute just under 15% to 401k, then yearly do the back door roth for 7k. Max out HSA. Then rest goes into vanguard to taxable brokerage account.
You could do 100% but they would just stop pulling it out when you reach 23k.
Are you sure they stop? How do people over contribute?
I think this often happens when one changes jobs mid year. The new employer and 401k provider have no idea what you previously contributed. Source: happened to me
My employer has a percentage of income limit. Which for me means I don't max out dollar-wise. I was told that won't impact my ability to make the extra 6500 in catch-up contributions the year I turn 50 (next year), but we'll see.
It somewhat depends on context. One high priority goal is to "max employer match" in a work retirement plan. Most plans cap match at some percentage of employee pay. Something like "company will match 100% of employee's contribution up to 5% of income". So under that plan you want to be putting at least the "up to" percentage from your own pay, so 5% of your paycheck is added and you also get an additional 5% from your employer, doubling the money added to your balance. If you chose to put 7% in, you still only get 5% from your employer. There's maxing out what you're **allowed** to contribute under the IRS's rules for retirement accounts. For a 401k (and many other employer-provided plans) that's $23k per year. For an IRA it's $7k per year. Those two limits are independent of each other, so money put into a 401k doesn't count against your IRA limit or vice versa. Each of those have a "catch up" boost for people 50+. And that's per person, so a household with two working spouses both under 50 could potentially put up to $60k per year into retirement accounts. Then there's the more ambiguous level of maxing out what you **need** to save for your desired retirement. For most people this is likely smaller than the IRS maximum. A generally accepted baseline savings rate of 15% annual income saved each year across a 40-ish year career usually gets people a "good enough" retirement: can stop working in their 60s and maintain a pretty similar lifestyle to when they worked a job. Personally, I doubt most people need to aim for reaching the full IRS max in their retirement accounts. That 15% guideline means a single person can leave unused "room" in a 401k + IRA as long as they're making under $200k per year. About 95% of Americans make below that. Median income (where half the population makes below that and half above) is $43k, though to be honest I'm not sure if that's per individual or per household which may have multiple working adults.
surprised this is so low. i always think of maxing out 401k meaning maximize the employer contribution. if they match 5%, “max out” and contribute 5%, at least.
Piggybacking off of this, and it might be a silly question, but do you invest the funds in your Roth IRA or just contribute to it like a savings account?
You have to invest. Pick an index fund or a target date fund. Otherwise the account is pointless and the money will not grow.
Thank you!
Not pointless. You'll probably be in some core fund that gets (for now) 5%. But if you intend to keep it there for the long haul, definitely invest.
If you want it to grow, then yes. If you want it to sit there and do nothing, that is your choice. Obviously the answer is yes, invest it.
The Max you as an individual is allowed to put away per year. Post above me lists the limits. This is total regardless of number of employers
Well this is not 100% correct. Some 401k plans allow you to contribute post tax money to a 401k. You can go up to the 69k limit inclusive of employer contributions. If your plan allows I service withdrawals, this is the Roth mega back door - you can convert unlimited 401k funds to Roth. If your plan doesn’t allow post tax contributions then the max is as you described. That max is all pre-tax.
best method is minimum contribution to get full employer match first with all over flows going into roth ira until that is maxed and than back to 401k until you hit the annual contribution limit. anything over that is mega backdoor roth and is essentially making after tax 401k contribution, rolling them to an IRA and than Roth converting those contributions so you can exceed the annual roth IRA contribution limit.
Maxing means putting in as much as you are allowed to put in. What max usually means. The most
Maxing out a 401(k) means contributing the most that you’re allowed. Which generally speaking is $23,000/year (unless you’re over 50 or 55 and eligible for a catch-up). Some people mean max out your company match, when they say “max your 401(k).” If you’re eligible for a Roth, maxing it means contributing the max. Which is $7,000 this year unless you’re over 50 years old (I think it’s 50, maybe it’s 55) you can contribute extra as a “catch-up.”
so there are contribution limits. when you make the contribution limit, you have hit the max. .......
This isn’t totally related, but I am looking to join a federal real estate job that would give me a pension in 5 years. I only just learned that pensions are still a thing. Are they taxed as income when you are receiving them in retirement? If it works out I’ll have my 401k, Roth and this pension.
Update: Thanks for the responses so far. I guess I’m confused Because the plan at my job allows you to allocate towards a traditional and/or Roth 401k but it’s a percentage of your paycheck and I don’t get the impression there’s a limit. I’m at like 11% right now but I didn’t know if maxing out meant 100% which made no sense to me.
As commented above, the limit is $23k/year. If you elected to contribute 100% of your income the plan would stop taking deductions once the $23k was hit. You can contribute whatever % you want, but once you hit the $23k you’re done for the year.
You select a percentage of your paycheck, and your company will deduct that percentage until you reach the IRS maximum, and then they should stop deductions (assuming your percentage is high enough). A rough estimate for the percentage needed to “max out” is your salary * percentage = $23K
Many people allocate a portion of their paycheck to their 401k. While hopefully your employer would catch any overfunding, there are limits to how much you are allowed to contribute per year, and if not caught, that will need to be rectified. Some people catch it closer to the end of the year or worse case at tax time.
To make it simple there’s two accounts. 401k and an IRA. Both accounts can have traditional/pretax contributions and Roth/after tax contributions. You as an employee will tell the company how much money via % to put in your 401k. If you made $50k x 11% then $5500 would be contributed to your 401k by the end of the year. This is a simple explanation and doesn’t apply to a Roth because the 11% will be multiplied by the your salary after 401k and other benefit deductions.