If I increase my contribution to my 401(k) account to an amount higher than what my company matches, will I have to pay taxes on the increased amount?
I currently contribute 7.5 percent to my 401(k) account, which my company matches. If I increase my contribution an additional 10 percent (without a match), will that be taxable in 2018?
Your contribution will not be taxable.
In 2018, you can contribute up to $18,500 to your 401(k). If you are age 50 or over, you are allowed to contribute up to an additional $6,000 (a catch-up contribution), or a total of $24,500. These amounts are adjusted for inflation each year.
Keep in mind that these limits ($18,500/$24,500) only refer to elective deferrals. They do not include other contribution sources like employer matching contributions, nonelective deferrals, or allocations of forfeitures. Including all sources, the 2018 contribution limit for these plans is increasing by $1,000 to $55,000. If applicable, after you add in the catch-up contribution, the total possible overall maximum 2018 contribution is $61,000.
The company match itself only refers to a benefit the company is providing to you. The amount you can contribute to a retirement account on a tax deferred basis is not impacted by your company match unless your total contributions as detailed above exceed the maximum overall contribution amounts of $55,000/$61,000. The size of your company's match sounds quite generous. If you are able to add another 10% above that you will end up contributing 25% of your salary to your retirement account this year. That is quite impressive.
I hope this helps.
As Fred mentioned, there is no current tax implication to contributing more to your 401(k) beyond the match. I assume, though, that you would like to save more towards retirement. If so, you have some some choices that, like your 401(k) can help you save for retirement but also do not have a match:
- Increase contributions to your 401(k) if you are under the maximum contribution level ($24K for 2018). This could reduce the taxes on your earned income.
- If you are under the income limits and would like to reduce future taxes, then take the extra money you would like to set aside for your retirement and open a ROTH IRA. This would be contributing to your retirement using after tax money, but your money will be available at retirement tax free (under current law). As the saying goes, "Pay taxes on the seeds, not the harvest."
- If you are over the income limits you can open a traditional IRA and then do a ROTH conversion (AKA back door ROTH). The IRA contributions are not tax deductible, but you can still convert the money to a ROTH. The draw back is they have shut the door on reversing this. So once converted you cannot go back to the IRA.
Increasing your contribution to your 401(k) will not be taxable. However, it is important to make sure that you do not contribute more than $18,500 to your account for 2018, which is the maximum allowable amount. The amount your employer contributes on your behalf does not affect the $18,500 limit.
No, it will not be taxable.
You can contribute up to $18,500 to your 401(k) in 2018. If you're age 50 or over, you can add an additional $6,000 (a catch-up contribution) for a total of $24,500. That amount is adjusted for inflation every year. All money contributed to your 401(k) is pre-tax.
Putting in more than your company matches has nothing to do with taxes. It just means you don't get a match.