Can I max out my 401(k) in four months?August 31, 2012: 6:30 AM ET
Let's say I am a 60-year-old man and I get a new job that starts in September. Can I contribute the maximum annual 401(k) limit of $22,500 over the remaining four months of this year, or can I only put in 25% of the maximum because I am only working 25% of the year? – Benjamin S.
As far as federal regulations are concerned, there's nothing preventing you from maxing out your annual 401(k) contribution of $22,500 (or $17,000 for those under 50 years of age) in the last four months of this year. However, some employers set limits on the amount you can pay into your plan every month. Check with your plan provider or benefits department to see what restrictions, if any, apply.
One note of caution: If you've worked during the year prior to starting this new job, any 401(k) contributions you made under your former employer's plan will count toward the annual $22,500 limit. If you overpay, you may face tax penalties.
And if you were considering making a single lump-sum contribution and your employer offers a matching plan, check first with your plan administrator, suggests Julie Decker, president of Melbourne, Fla.-based IMS Partners. Decker points out that a single lump-sum contribution may mean missing out on some of your matching dollars. "The way many company plans are set up," she says, "the employer only has to match in the months that the employee defers income to the plan." Decker recommends checking with your employer, since some companies may be willing to make up any shortfall in your annual match at year-end.
— Marc Mewshaw
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