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No 401 Way

Ben Rodriguez

MY WIFE AND I ARE super-savers. For us, that means we save as much as permitted each year in the retirement plans available to us. Once we’ve done that, we invest in our regular taxable accounts, where there’s no limit on the amount we can contribute.

We’re under age 50. That meant that, in 2022, the maximum contribution was $6,000 each to our IRAs and $20,500 each to our 401(k)s. Because the contribution limits increase with inflation, the 2023 limits are $6,500 for IRAs and $22,500 for 401(k)s.

My wife is considered a highly compensated employee—I know, a nice problem to have—so her company reduces the amount she can contribute to her 401(k). That makes me even more motivated to contribute all that I can. I also have a high-deductible health insurance plan with an accompanying health savings account, which allowed me to sock away $3,650 in 2022, then the maximum allowed. This year’s max is $3,850.

In recent years, it’s become fashionable to bash 401(k)s for reasons I don’t entirely understand. While I enjoy contributing to all my accounts, I view the 401(k) as the primary vehicle for ordinary Americans to build wealth. I still believe it’s possible for regular people to get rich in this country, and to do so they should contribute to their retirement plans—even if they don’t or can’t save the maximum allowed.

Which, surprisingly, recently happened to me.

In March 2022, I was enjoying both my job and my journey toward maxing out my firm’s 401(k). Quite unexpectedly, I received a job offer from another firm, one that was too good to refuse. My new employer also has a 401(k). But the firm’s policy is that new employees couldn’t begin contributing until they worked there for six months.

Because I started the new job on April 11, that would mean that I, Mr. Super Saver, would have to cool my jets until October, when I could then resume my 401(k) contributions and max out that year’s contribution limit.

No problem, I thought. I dutifully calculated the difference between the maximum contribution for 2022 and the amount I had contributed at my previous employer. I then plotted the exact percentage of my income I’d need to have deducted each pay period to hit the maximum for the year with my new 401(k).

When the pay period following Oct. 11 arrived, I eagerly checked my paystub for confirmation of my 401(k) contribution. Nothing was deducted. Obviously, there was a mistake in the processing, either with my firm or its 401(k) provider. I immediately contacted human resources.

HR informed me that there was no mistake. The firm’s policy, it turns out, states that a new employee can begin making 401(k) contributions on the first day of the next quarter that follows his or her six-month anniversary. Because I began work on April 11, that date was Jan. 1, 2023. In other words, I was 11 days too late to contribute anything more for 2022.

Acting as my own counsel, I objected to the rule. I begged that an exception be made so that I could super-save. The objection was overruled, and no exception was granted for little old me.

In addition to fine print like this, there’s another important point for employees to understand: The individual annual 401(k) contribution limit applies, no matter how many jobs or 401(k) plans they may have. If you’re under 50, you may not under any circumstances contribute more than $22,500 to all of your 401(k)s in 2023. Workers 50 or older can contribute another $7,500 in catch-up contributions, or $30,000 maximum from all jobs they have.

Because I only had one job at a time in 2022—which was enough for me, thank you very much—that meant I was effectively unable to contribute anything further to my 401(k), beyond what I’d already saved in my previous employer’s plan.

Although disappointed, I made extra contributions to taxable brokerage accounts and also saved some cash. As it happens, that extra cash came in handy—when our home was damaged by a tornado. But that’s another story.

Licensed in both Ohio and Kentucky, Ben Rodriguez practices real estate law in Cincinnati, where he lives with his wife and daughters. Since 2009, Ben’s made a hobby out of personal finance by reading books and articles on the subject, and also listening to podcasts. Check out his earlier articles.

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