November 28, 2006

401k Cap Rule Confuses Paycheck Reality

Quickly glancing at the direct deposit data in my bank would show you that over the last three pay periods, my take-home amount had steadily increased - without my knowledge of any raise, paid expense reports or even a holiday or end of quarter bonus. Having grown accustomed to the same number chiming in every two weeks, this variation, first two weeks ago, and even more odd this most recent Friday, caught my eye. Upon further investigation, it turns out I'm still the same old schmuck, and an obscure footnote on our 401k plan had kicked in.

I recognize the need to save for the future, and to start early is the best policy. Therefore, at the beginning of the year, I engineered my givings to the company 401k plan to be a good percentage, but not so high as to leave us short each month. Every two weeks, my paycheck is split in a dozen pieces, with the biggest chunks going to me, federal and state governments, and to the 401k. But our corporate plan, through Fidelity, is capped at a contribution amount of $15k annually. So, even if you jack up your contribution level to 20, 30 or even 50 percent of your salary, once you reach $15k in donations to the plan, it stops cold, leaving your future paychecks at the mercy of Uncle Sam, instead of being held for your future retrieval, tax-free.

At the rate I had elected to shuttle cash to the 401k, I hit my cap in early November, when only a portion of the usual amount was excised from my take home pay. This Friday's check, seemingly too high, had not taken out a single dime, and we won't see any further donations until the beginning of 2007. It may be an arcane rule, and somewhat confusing, but I plan to simply recognize it as something resembling a holiday bonus, and will forget about the future for a full month or so.

Listening to ''Rendezvous'', by Paul Oakenfold (Play Count: 6)

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