USA 401k contribution. exploring options

[tparvaiz]

Hi,

I have a 401k contribution through my company. With this deduction rate, I may be able to contribute 3k by Dec 31, 2020.

I know the max limit for 401k is 19k.

is there an option to pay the diff (about 16k) through a direct deposit from my bank account to a 401k account (sorry, I am new in the US and not aware of policies and practices)?

Thanks

 

[MoralesTax]

Hello!

Unfortunately, you cannot directly deposit personal funds to your 401(k) account. The employee contribution is based on wages/compensation earned, and therefore needs to come straight from your payroll source. However, you could elect to contribute your entire paycheck(s) towards the 401(k) until you've reached the $19,500 limit (for 2020) and live off your savings that you otherwise would have used to make that contribution.

Alternatively and potentially in addition, you may have the ability to make a further contribution to an IRA (Individual Retirement Account), up to $6,000 for 2020. Different rules apply for IRAs depending on your age, marital status and income.

 

[tparvaiz]

I have already filed my 2019 taxes, can I backdate contribution to an IRA account?

 

[MoralesTax]

The last day for a 2019 contribution was July 15, 2020. Therefore, no. It is too late now to do so. However, you can contribute $6,000 for 2020 and another $6,000 next month for 2021, if you're under the age of 50.

May I suggest that depending on your tax bracket, you may want to also consider a ROTH IRA. You would get no tax deduction for your contributions today, but the income earned is tax-free. Ultimately, having both an IRA and ROTH IRA and playing with conversion strategies are the best way of maximizing tax efficiencies and wealth generation.

Also, to emphasize, different rules apply for IRA and ROTH IRAs, depending on your age, marital status, employment status and income.

 

[tparvaiz]

Thank you so much for your assistance.