FSA affect on Calculation of 401K contribution.

  • Thread starter TheUsenetReader
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T

TheUsenetReader

Example:

Employer matches 401K 1:1 up to 5% of gross salary.

Gross annual salary: $100,000.
Gross salary per pay period: $2000.
FSA deduction per pay period: $100.


Employee wishes to contribute exactly $5000 to 401K (in order to
maximize the matching benefit) as quickly as possible.

If employee chooses to contribute 100% of the first paycheck to 401K,
will his individual
401K contribution for that first pay period be $2000 or will it be
$1900? ($2000 minus the $100 FSA contribution).
 
S

smithff33

Example:

Employer matches 401K 1:1 up to 5% of gross salary.

Gross annual salary: $100,000.
Gross salary per pay period: $2000.
FSA deduction per pay period: $100.

Employee wishes to contribute exactly $5000 to 401K (in order to
maximize the matching benefit) as quickly as possible.

If employee chooses to contribute 100% of the first paycheck to 401K,
will his individual
401K contribution for that first pay period be $2000 or will it be
$1900? ($2000 minus the $100 FSA contribution).
Why not ask your plan administrator or HR department?
 
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P

Paul Thomas, CPA

Example:

Employer matches 401K 1:1 up to 5% of gross salary.

Gross annual salary: $100,000.
Gross salary per pay period: $2000.
FSA deduction per pay period: $100.


Employee wishes to contribute exactly $5000 to 401K (in order to
maximize the matching benefit) as quickly as possible.

If employee chooses to contribute 100% of the first paycheck to 401K,



Talk to your employer about that, as they may not allow you to, in effect,
overfund your 401K with the first paycheck. If you were to quit, be fired,
die, or otherwise leave employment, you have - in reality - overfunded your
contribution. Most plans don;t allow for this type of loading.

The only way you'll know is by asking those with the plan documents in hand.
 
T

TheUsenetReader

Talk to your employer about that, as they may not allow you to, in effect,
overfund your 401K with the first paycheck. If you were to quit, be fired,
die, or otherwise leave employment, you have - in reality - overfunded your
contribution. Most plans don;t allow for this type of loading.

The only way you'll know is by asking those with the plan documents in hand.
I know that they do allow me to contribute 100% of paycheck. I will
need to check about this "overfunding" (not sure what that means). I
am not aware that the tax law requires the employee to complete the
full year of employment and assume that it is up to the individual
employer plan as to what happens in the event of employment leave. But
as far as I am aware, any 401K contribution, once made, cannot be
revoked.


And is there a tax law with regard to FSA. If employer states that
they match up to 5%, does that mean 5% (gross salary) or 5%(gross
salary minus FSA contributions)?
 
P

Paul Thomas, CPA

I know that they do allow me to contribute 100% of paycheck. I will
need to check about this "overfunding" (not sure what that means). I
am not aware that the tax law requires the employee to complete the
full year of employment and assume that it is up to the individual
employer plan as to what happens in the event of employment leave. But
as far as I am aware, any 401K contribution, once made, cannot be
revoked.
And is there a tax law with regard to FSA. If employer states that
they match up to 5%, does that mean 5% (gross salary) or 5%(gross
salary minus FSA contributions)?




It's generally going to be a percent of gross salary before deduction for
the deferred compensation.

Remember that they ~~will~~ withhold Social Security and Medicare taxes
first, so you can not effectively make a **100% of gross** contribution
because you'll have roughly 7.65% withheld up-front, and there may be other
pre-tax withholding that needs to be made (health insurance, child care, etc
are the most common).
 
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R

rick++

Also check if the matching is per pay period or whole year.
My last three employers only did the first.
So I had to space out my contributions to make sure there
was full match amount each pay period and that I did not
cap out before Dec 15.
 

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