[compiler]

This is regarding to the contributions for the people under 50. Assuming Employer-matched contributions is 50 cents for every dollar contributed, up to a maximum of 6% of pay. Will the maximum funds 16,500 plus 6% of 16,500 (17,490) going into one's 401k account in 2011?

[ebaines]

The match by your employer is not 6% of your contribution, but rather 50% of your contribution - unless your contribution is greater than 6% of your pay. If your contribution is greater than 6% of pay, your employer matches half of the first 6%. Stated another way - your employer's contribution is the lessor of (a) 3% of your pay, or (b) 50% of your contribution. Since your contribution is not allowed to be greater than $16.5K, the largest possible emloyer contribution is half that, or $8,250, but only if $16,500 is not more than 6% of your pay.

[compiler]

thanks for reply. So, the maximum contribution $16,500 (from employee) + $8,250 (from employer) = $24,750 can go into the employee's 401k account in 2011. Is it correct?

[ebaines]

thanks for reply. So, the maximum contribution $16,500 (from employee) + $8,250 (from employer) = $24,750 can go into the employee’s 401k account in 2011. Is it correct?

Yes the math is right for employees under age 50, but obviously this magnitude of employer contribution is only for employees whose pay is at least $275,000 per year. One other point - for employees with this amount of pay and contributions it's possible that the IRS may disallow a portion of the full contribution - there are restrictions on how much pay a "highly compensated employees" can defer via the 401(k) versus the average employee.

[compiler]

You said, “this magnitude of employer contribution is only for employees whose pay is at least $275,000 per year.� If an employee's pay is $100,000 and he contributes $1375 ($16,500/12) every month, the employer can match 50% of his contribution $687.50 (1,375/2) each month. Thus, the total amounts goes into his 401k account is still $24,750 in 2011 (16500 + 8250). Isn't it correct or I misunderstood you? Can you clarify your answer?

[ScottGem]

An employee can only contribute up to a certain percentage of pay. That's why EB referred to highly compensated. If an employee makes $100K they can only contribute $6K.

[compiler]

Following ScottGem's reply. So, if an employee makes 50K, then he can only contribute $3K plus his employer-matched contribution 1.5K to his 401k. Is it correct?

[ScottGem]

Each plan is different. So you have to go by your plan's provisions. Most plans will only accept contributions by payroll deductions (except for rollovers), therefore you are limited to the max percent of payroll deductions allowed. Definitely the matching is based on that max.

[ebaines]

If an employee's pay is $100,000 and he contributes $1375 ($16,500/12) every month, the employer can match 50% of his contribution $687.50 (1,375/2) each month. Thus, the total amounts goes into his 401k account is still $24,750 in 2011 (16500 + 8250). Isn't it correct or I misunderstood you? Can you clarify your answer?

Sorry - I hit "agree" on your post by mistake. Please ignore.

This employee in your example is contributing 16.5% of his pay to his 401(k). The employer will match 50% of the first 6% of his pay contribution - or a total of 50% x 6% x $100K = $3000. Thus the total amount that this employee's acccount receives is $16,500 + $3,000 = $19,500.

[compiler]

So, the total controbution can exceed $16,500 from your answer. I also did research. The correct answer should be the employer contributions to 401k plans are NOT counted toward the Pre-Tax Employee Contribution Limits. It is a separate contribution. So the total contribution from employee and employer could exceed $16,500. The contribution limits $16,500 in 2011 is placed on the employee only.

[ScottGem]

The IRS rules set maximum contribution limits. That doesn't mean the plan must allow employees to contribute the maximum. As I said, most plans only allow contributions by payroll deduction and the plans will dictate the maximum payroll deduction.

[ebaines]

So, the total controbution can exceed $16,500 from your answer. I also did research. The correct answer should be the employer contributions to 401k plans are NOT counted toward the Pre-Tax Employee Contribution Limits. It is a separate contribution. So the total contribution from employee and employer could exceed $16,500. The contribution limits $16,500 in 2011 is placed on the employee only.

Yes, the total contribution can exceed $16.5K - for example if the employee contributed $16.5K (the max allowed for someone under age 50) and the employer matched some of that amount then the total is more than $16.5K. And yes, the employer's contribution does not impact the amount the employee can contribute - but it wasn't the question you asked. You kept focusing on the calculation of maximum total contributions that might be made to an employee's account. Hopefully it's clear to you now.

[compiler]

Your answer is irrelative.