What Happens When You Hit the 401k Contribution Limit?

If you max out your 401k before your last paycheck for the year your employer's payroll dept will stop deducting 401k contributions from your paycheck.

Is it a bad idea to max out early? Generally speaking it could be less optimal to max out early. If your employer makes 401k matches based on a percentage of your salary contributions, if you max out early then you may miss some of your entitled employer matches. However, some companies offer match maximizers that will give you your entitlement maximum so check with your employer first.

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Comments (2)


This is what I have at my work:

My company offers Roth 401(k). The employees are *advised* to determine the percentages of contributions that should go to post-tax and pre-tax. And then make sure that sum of all contributions (post-tax, pre-tax, and company match) should not exceed the IRS limit for that year.

If the contributions exceed, then there is a 6% fine on the excess contribution (and the contribution is returned, of course).

We can change the contribution percentage online at any time, but it takes two pay cycles to come into effect. So the best thing we can do is calculate the contribution percentages in the beginning of the year.

Maybe this is company specific ..... this is a big fat oil company, and even a new hire (although with PhD) will exceed the limits if percentages are not chosen correctly, and then lot of effort will be wasted in trying to adjust that.

Interesting that one would get penalized in terms of matching based on when the contributions were made. Is that really how some plans work? Seems odd. (Of course, working in an industry that has no matching, I'd love anything in terms of a match.)

Most people don't max out early because, frankly, they can't for cash-flow reasons. But there are benefits to maxing out early. (1) If you are disciplined, it can be a tool to help you manage to a lower budget, making the extra money (i.e., the portion representing your 401K contributions not deducted from your paychecks after you have maxed out) something you could devote to other purposes, particularly saving. (2) if you are changing jobs. 401Ks often have waiting periods before you can participate. Maxing out early can help make sure, if you are changing jobs, that you don't lose out on the opportunity to make your savings on a tax-deferred basis. (Assuming you are already separately maxing out IRA options or ineligible for the Roth IRA option and so have no other alternatives.)

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