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flytootall · Sep 26, 2007, 05:05 PM

I currently have 40% of my income taken out for my 401K plan. A friend told me that I can be taxed and penalized when there is too much taken out for 401K. When I reach the maximum, there is no longer any taken out; however, she asked her financial planner and also her tax guy and they both agreed that you can only contribute a certain percentage of your salary. I am very confused about this and have found nothing regarding a percentage anywhere on the internet. My company does not match anything.

GlindaofOz · Sep 26, 2007, 05:12 PM

I've never heard of that much being taken out. Typically the maximum an employee can contribute per pay period is 15%. This is to eliminate that maximum being blown out of the water. There is a maximum that can be contributed annually into an employer 401K. I'll try to find the information for you. I used to work in finance and we had to cease 401K payments all the time since 15% of big huge fat paychecks reaches the maximum really quick.

GlindaofOz · Sep 26, 2007, 05:13 PM

For 2007 the annual maximum contribution is $15,500 unless you are over 50 and doing "catch up" then you can max out at 20,500

flytootall · Sep 26, 2007, 06:34 PM

I knew the maximum was somewhere around that (I'm over 50, so I'm allowed the $20,500). As far as I know, you can contribute up to 100%, but of course, once you reach the maximum ($20,500 in my case), it automatically stops. The percentage I'm talking about (of which I know nothing) has something to do with your salary. According to my friend's financial advisor and her tax guy, you cannot go over a certain percentage of your salary. She was trying to explain it to me, but I didn't understand. I guess if you make $20,500 a year, you certainly cannot contribute 20,500. I guess that's where the percentage comes into effect.

GlindaofOz · Sep 26, 2007, 06:36 PM

That I don't have any knowledge of. We have a lot of smart cookies around here. I'm sure one of them will make their way to your post :)

ebaines · Oct 6, 2007, 12:23 PM

I don't believe that the law specifies a maximum percent of salary that one can contribute to an IRA, although as already noted there is indeed a maximum dollar amount. However, companies often impose rules in their 401(k) plans that are not necessarily required by law - and it is not uncommon for employers to impose a maximum contribution of 15% of eligible salary. Sounds like your company has no such restriction.