Key Points
– Employees cannot make a lump-sum deposit into their 401(k) via a personal check.
– Contributions to a 401(k) plan, known as “employee deferrals,” must be made through payroll deductions.
– Workers can increase their payroll contribution percentage for the remainder of the year to catch up on savings.
– Company 401(k) plans may have rules that limit the percentage of pay that can be deferred each pay period.
Q. I’m 45 and earlier this year, there were rumors of layoffs at work, so I cut back from maxing out my 401(k) contributions to just get the company match. I put the $15,000 difference in my checking account in case I needed it. Fortunately, I won’t be laid off. If I write a check for $15,000 to the 401(k) to get back to the max, how will that show on my tax forms? Do they adjust my W-2? Is a statement showing the deposit enough proof or do I need a receipt of some kind? – Paul in Cocoa Beach
A. Paul, the amounts you contribute from your pay are “employee deferrals” and can only be done through payroll. You cannot cut a check to the plan. However, you may still max out your contributions to the 401(k), if you can navigate some limits.
The law allows participants in a 401(k) plan to contribute 100% of their earned income up to the employee deferral limit for the year which is $24,500 in 2026 for workers under age 50 ($32,500 for those over 50). However, plans can restrict the percentage of each pay cycle that can be deferred. If your plan limits the per pay period deferral percentage to say 15%, that is all you will be allowed to contribute.
To find out what is possible for you, you will need to review the plan’s Summary Plan Description. That document describes your plan’s particular rules including what you can contribute and how often you can change your contribution level. Some plans allow changes at will, but others restrict changes to elective deferrals to certain frequencies or specific dates. It is common for it to take a pay period or two before changes go into effect.
With that backdrop in mind, here’s how you might be able to still max out in 2026 or at least get closer to doing so.
Calculate how much you will have contributed through the end of the year if you make no changes to what you are doing. Subtract that amount from the maximum $24,500 and you have your goal for additional deferrals.
What does having a per pay period dollar goal accomplish?
Next, divide the goal by the number of pay periods for which a change would apply. This gets you a per pay period dollar goal. Then convert that dollar amount to a percentage of your pay and increase your deferrals by that percentage.
You said you are on pace to fall $15,000 short of maxing out. If you have 5 pay periods left in the year, you would need to save $3,000 more per pay period to max out. Convert $3,000 to a percentage of your pay and increase your contribution rate by that percentage if the plan allows it. If not, increase the contribution rate as high as you can to get as close as you can to maxing out.
If you can contribute the full $3,000, your take-home pay will go down by $3,000 or less depending on whether you contribute pre-tax, after-tax, or to a Roth account. To cover your expenses after the drop in take-home pay each pay period, you simply use the funds in your checking account.
By the end of the year, the result will be very similar to what would have happened had you been permitted to write a check. You will have put $15,000 in the 401(k) and your checking account will be lower by $15,000 if making Roth or after-tax contributions or less than $15,000 if making pre-tax contributions.
Dan Moisand, CFP® has been featured as one of America’s top independent fee-only financial planners for retirees and near retirees by at least 10 financial planning publications and practices at one of America’s most decorated independent firms. For more info, e-mail him at dan@moisandfitzgerald.com, visit moisandfitzgerald.com, or call Dan at 321-253-5400, ext. 101.
Originally published on FloridaToday. Read the original article here.