Overcontributing to Retirement Plans

Overcontributing to Retirement Plans

Sorry I haven’t posted lately, but like many people I am enjoying time with my in-laws in my home state. It is nice to see family and friends, but it is back to making the donuts next week so I better enjoy it.

However, I found out something today that I thought was an interesting post. Last week I discussed whether or not I was going to suspend some of my retirement withdrawals and use that money to pay off my personal loan early. As it turns out I decided to do nothing so far and that basically means that I am probably just going to leave it where it was.

The kicker was I should’ve actually suspended some of my retirement contributions before the year ended, at least for part of the month of December.

My Retirement Contribution Miscalculation

My job, as most of you know, is a college professor. Based upon my union contract I am mandated to contribute 11% of my income to retirement, which is called the Optional Retirement Plan (ORP), also known as a 401(a) which is similar to a 401k. Or at least 11% regarding my salary. That can never be reduced. However, like most government employees I have access to a 457 retirement plan and a 403(b) retirement plan. That means I can actually contribute to all three plans. I actually only contribute to a 401a and 403b. I have not taken the plunge get for the 457, but I hope to this year.

Anyway, IRS rules for maximum yearly contributions is $18000. I can only contribute $18000 to my 401a AND 403b COMBINED. The 457 is classified differently and I could contribute an additional $18000 to that plan.

At the beginning of the 2015 I calcluated my contributions from my 401a and 403b with raises and the like and realized that for the first time ever I could maximize my yearly retirement contributions. YAHOO for me right?

Wrong.

The Christmas holiday screwed me up this year.

I get paid biweekly and my last paycheck for this pay period ended on December 26th. Well, typically that money will come out on a friday. This friday is January 1st, which is technically a holiday.

Now I had wondered about his in the past and I looked on our human resources pages to get a definitive answer about when this last paycheck would be deposited into my account. On their website they didn’t list the 31st as a payday. So I naturally assumed that my retirement contributions and income I earned for this last paycheck would go into 2016.

EH WRONG ANSWER Jason. Ooops, I screwed up.

I found out yesterday that I am actually getting paid on the 31st. This income will be posted for 2015, not 2016, and my retirement contributions will be posted for 2015, not 2016.

The two problems with this is that 1) I have more taxable income for 2015 and not 2016, which could raise my tax bill, which I have been trying to reduce; 2) I have overcontributed to my retirement plans unbeknownst to me.

The Solution

I admit when I saw this I was a bit peeved. Peeved at myself and peeved at my employer that they didn’t list the 31st as a normal payday. I would have made adjustments to my retirement contributions.

That said, I went online and apparently the solution is fairly simple I have to ask my employer to take back my retirement contributions and then those monies will show up as income for my final income of the year.

It isn’t a big deal and more of a hassle than anything.

Lesson learned: Call or check with your employer and actually ask them if you will be paid on a holiday if your normal paycheck comes on that day. Something I didn’t do.

P.S. I know many of you are starving for more posts from this blog (ha, ha, ha…). I promise they will be coming in the new year when I get back to the normal work week starting next week.

 

Comments are closed.