Not stocks, but 401k question

[Bassin Billy]

Have been informed that because I am considered HCE i've lost opportunity to participate in 401K?? What the heck...??? Can anyone help me understand the reasoning behind this?

[Bamaman]

HCE ?

The alternative is a Roth IRA.

[Charles Prestridge]

You need to read up on this topic. Rule was enacted to keep top earners from contributing max amount and lower earners not having enough to contribute pre-tax to 401k. Depending on how your company is set up, they may be using HCE limit set by IRS or top 20% earners in the company. HCE contributions cannot be more than 2% higher than lower earners.

Some companies will send out notices to HCE's that they can only contribute less than IRS max per year due to this rule.

Catch-up contributions for over 50 year olds are not limited (I think).

[janky]

Highly compensated employee.

top heavy rules suck.

[NitroZ7]

I got the HCE letter this year and they refunded about $1,100.00 of my contributions (which i will need to pay tax on). I still participate but I guess i may as well drop my contribution amount going forward. I wasn't sure if the match triggered it or what the culprit was but the letter said our program did not meet the IRS rules. Someone told me at work that the low participation rates of the other employees may affect whether the plan passes whatever standard is used but I can't confirm that.

[Chief Paduke]

I got the HCE letter this year and they refunded about $1,100.00 of my contributions (which i will need to pay tax on). I still participate but I guess i may as well drop my contribution amount going forward. I wasn't sure if the match triggered it or what the culprit was but the letter said our program did not meet the IRS rules. Someone told me at work that the low participation rates of the other employees may affect whether the plan passes whatever standard is used but I can't confirm that.

You can’t try to play the drop the contribution thing, because the amounts refunded change from year to year.

[janky]

Low participation does hurt. If it is a small company you can talk to the decision makers and look into switching to a safe harbor 401k. They automatically pass the top heavy tests.

[brnzbaklvr]

Some companies set up Roth 401ks for higher earners...there is no MAGI limitation on Roth 401ks..It's kind of a backdoor way for high earners to invest.....It a post tax investment...https://www.investopedia.com/terms/r/roth401k.asp