Here are some important points to note so you can maximize the benefits of your employer plan, without being penalized for doing too much of a good thing.
Vesting - In terms of retirement plan contributions, it’s important to know that if your employer makes contributions (matching) it may have a vesting period, but all employee elective deferrals (i.e. contributions you’ve chosen to deduct from your paycheck) are always 100% vested.
Contribution limits - For 2020, employee contributions for traditional 401(k) plans max out at $19,500, or $26,000 if you are over age 50 and permitted by your plan ($6,500 catch-up contribution).
Note that contribution limits for elective deferrals are across ALL plans in which you participate. While an employer may stop you from overcontributing to their plan, they don’t have knowledge of what you may have contributed in any of your other jobs. To avoid penalties, you want to make sure you haven’t overcontributed.
If you changed jobs – you will want to make sure that the amount you contribute to both plans combined does not exceed annual limits.
If you have multiple jobs - if you participate in two different employer plans concurrently, the same contribution limits apply. You will also want to consider whether one plan provides more company matching than the other, and ideally be able to max out company matching across both plans.
Also, once you’ve left a job you won’t be able to contribute to that account any more. How come? Because employee contributions are elective deferrals of one’s own salary, and you are no longer earning wages to contribute. You can read more about options for your former employer 401(k) here.
Making your decision
There’s no one-size-fits-all policy for what to do with your 401(k), which is why it’s important to understand your options. Paceline can help you assess your options in more detail and choose the path that makes the most sense for you.
For a free, no-obligation consultation, or a Portfolio Second Opinion, please contact us.
This blog was written by Jeremy Bohne, Principal & Founder of Paceline Wealth Management. Paceline is a fee-only investment advisor serving clients in the Boston area, and on a remote basis throughout the country. Paceline specializes in helping tech and biotech executives, physicians, and those seeking financial planning services.