porkedpie

Hello,
I am moving to the US next month. Is the 20,500 401(k) max contribution limit pro-rated for the months that I will be a US resident? i.e. if I only live in the US for 2 months of the year am I only allowed to pay in 2/12 * 20500 = 3416 in total? Or can I put in the full 20.5k in a couple of months?

Expatrian

It’s not pro-rated, so you can add $20,500 ($27,000 if you’re over 50) in the calendar tax year any way you want. You must have at least that amount in earned income for the year, however, so best practice is not to contribute more than you’ve actually earned at any given point to avoid having to undo it later.

porkedpie

Understood, thanks so much!

durham_lad

Note that your employer may impose their own limits. My employer when I worked in the US only allowed a maximum of 20% of gross pay to be put into a 401k, along with their 5% contribution. I used to contribute the max 20% every pay period and it would automatically stop once I hit the max limit but the employer match continued to year end.

newadventure

I have just been thinking about this. Once you hit the max limit, you can't contribute any more. How can your employer continue to contribute if they are matching your ($0) contribution?

durham_lad

Some employers continue, some don’t. At first I used to roughly divide my annual contribution by 12 and set my contributions to insure I got my match every month until the company said it didn’t matter. In my case the match was a max of 3%, so if I earned $100k in a year the company match would be $3k so it didn’t cost the company any more or less if one paid in as fast as possible or stretched it out over 12 months.

I did hear that not all companies did this.

Glasgow Girl

Some things can be a little odd over here, especially when it is government regulated. I had a Flexible Spending Account through an employer that enabled you to contribute $x per month tax free to pay for healthcare costs. I left the company half way through the year yet the company paid out a full years worth of contributions when I submitted my expenses. It turns out they have to pay you what you were going to contribute for the whole year even though you did not actually contribute the full amount.

durham_lad

I had a similar experience. I was scheduled to retire March 1st and in December HR advised me of that rule. I already knew it and had signed up in the November for a significant amount the following year knowing that we planned to have January visits to the dentist and opticians to be tested and buy new glasses. I only made 2 contributions to my FSA but was able to spend 12 months worth of pledged contributions.

cautiousjon

The difference with FSAs (versus HSAs) is that the employer gets to keep the excess funds after the runout period has elapsed. If someone contributes $X to the FSA but only spends $X - $Y, the difference can be kept by the employer. This helps to offset situations where employees claim more than they've repaid and then quit, leaving the employer with the need to absorb the difference.

durham_lad

Exactly.

If the OP ever gets a choice between FSA and HSA then choose HSA every time.

cautiousjon

Better yet, if your employer offers a limited purpose FSA and an HSA with the same healthcare plan (like my previous employer did), take advantage of both! I can always spend an FSA of money on dental and vision in one year. I enjoy getting new glasses and my teeth can always use more work.