Is there a % of wages contribution limit to 401ks?
I know in 2024 a 55 year old can only contribute $23,000 +$7,500 catch up to their 401k, but is there a limit on the % of their pay they can contribute to 401k?
Example: Client makes $120k per year, but only wants $40,000 of income in the final year of work before retiring.
Can they put 100% of wages to 401k contributions until the $30,500 is reached in the first ~3.05 months, and then change it to 0% for 4 more months?
Permalink Submitted by Alan - IRA critic on Thu, 2024-08-01 14:50
There is no set IRS % limit but the plan itself is likely to have a % limit. 100% is not possible if there are ANY withholdings (eg FICA, Medicare, income tax, health insurance or cafeteria plan contributions, etc).
Also, note that if client maxed out the dollar limit early in the year, but did NOT retire, they could lose out on their possible matching contributions due to several paychecks with no 401k contributions after the elective deferral limit was reached. Company would have to offer a “true up” match at year end to prevent this.