Super 401k and Multiple 401ks

Even though everyone knows that you can put up to $22,500 into their 401ks, they often don’t realize that they can save up to $66,000 a year and can increase that using multiple 401ks with different employers.

What’s a 401k 

A 401k is a way to save and grow your cash for retirement in a tax-smart way. An employee contributes a portion of their paycheck to the account, which the employer can choose to match. The contributed funds are invested, growing with certain tax advantages, allowing the employee to have funds to retire on.

There are two types of 401ks: Roth 401ks and Traditional 401ks. The main difference between the two is how they are taxed. Roth 401k contributions are taxed going in, grow tax-free, and can be withdrawn tax-free. Traditional 401k contributions are tax deductible going in and grow tax-free, but all withdrawals are taxed coming out.

How much can I contribute to a 401k

In 2023, an employee can put up to $22,500 ($30,000 if 50 or older) into either a Traditional 401k or Roth 401k each year. The employer can match a percentage of the employee’s salary, which can be added to the $22,500. Even though the employee’s contribution can be pretax or after tax, any employer match is considered only pretax.

For example, an employer offered a match of 100% of any employee contributions up to 3% of their salary, and an employee was making $100,000 a year. If the employee wants to put the most into their 401k, they can contribute up to $22,500 into either a Roth 401k or a Traditional 40lk. However, the employer can only put the match of $3,000 into the employee’s Traditional 401k. So, the employee has $25,500 of 401k contributions on the year. But what if they wanted to save more?

What’s a Super 401k

A Super 401k is a term coined to describe an employee taking full advantage of a regular 401k. What people often don’t realize is that the IRS allows employees to have up to $66,000 ($73,500 if 50 or older) of contributions into their 401k each year. That $66,000 limit includes the employee’s contributions and any employer match combined. But how can they get to $66,000 if the employee can only contribute $22,500 to it and the employer match is often not large enough to fill the gap?

There is another type of 401k that most people aren’t aware of, called the after-tax 401k. The after-tax 401k is taxed just like a Roth 401k, but it allows the employee to add contributions above the $22,500 core limit. Using this type of 401k allows the employee to fill the gap to maximize the $66,000 contribution amount to their 401k.

Let’s take a closer look using the same example from above. The employee can contribute up to $22,500 in their Roth 401k or Traditional 401k, while their employer contributes $3,000 to their Traditional 401k, making a $25,500 total. If the employee wanted to save more for retirement, they could add up to $40,500 in their after-tax 401k to get their 401k savings total to $66,000 for the year.

Unfortunately, not all employers allow for the Super 401k. The $66,000 is an IRS limit; however, many employers aren’t even aware that this is possible and, therefore, don’t include it as an option for employee 401k plans. If it’s not listed as an option on your plan, contact your HR team to see if it’s possible to get this done.

It’s important to note that there are penalties for overcontributing to a 401k. If you overcontribute, you must pay an early withdrawal penalty of 10% and taxes. Once you pay those, the amount is added to your current income and is taxed again. Therefore, if you overcontribute, you face paying a 10% penalty and taxes twice, which is why it is super important to know exactly what you can and can’t do regarding your specific plan.

Can I max out multiple 401ks?

If the employers are “unrelated,” then yes. For example, you could potentially max the $66,000 limit on two 401ks for a savings of $132,000.

Two employers are “unrelated” if they aren’t operating as a controlled group. A controlled group can look two ways:

1. Parent-Subsidiary Controlled Group: When the parent company owns +50% of the other
2. Brother-Sister Controlled Group: Five or fewer individuals, trusts, or estates own +80% ownership

How it works is that the employee can split the core contribution of $22,500 in any of the 401ks and any type. It’s best to split that contribution in such a way as to get as much employer match within each plan. After the core employee contribution and after the matches, the employee can contribute to an after-tax 401k to get each 401k to the $66,000 limit.

One important note is that each unrelated employer can only have one 401k, SEP, or SIMPLE. So you can’t take advantage of the double maxing if the 401k plans are at the same or related employer.

In Summary

Super 401ks can increase your 401k savings up to $66,000 ($73,500 if 50 or over) using an after-tax 401k. It’s also possible to increase your 401k savings further through contributing to multiple 401ks as long as it’s with unrelated employers. It’s important to know exactly how much you can contribute to your 401k plan to avoid any overcontribution penalties.