While you may be looking to contribute your entire paycheck to your 401(k), required federal and state withholding typically prevents you from doing so.
As a result, the highest rate of compensation you may be able to defer for pre-tax contributions is 92.35% for most states. Other states, such as California, typically only allow you to contribute up to 91.45% of earnings to cover additional state-required withholdings, like California’s state disability insurance.
For Roth (after-tax) contributions, the highest rate of compensation you may be able to defer is 68.67% to accommodate federal taxes in addition to other withholdings.
If you input 100% for your contribution rate, your payroll provider may be able to automatically adjust your rate to account for the highest allowable amount automatically. However, not all providers can do this, and for some, a deferral rate of 100% can create payroll processing errors. For this reason, we suggest using a lower rate or checking with your payroll provider first to determine the maximum contribution you should elect.
Additionally, contributing a high percentage of your paycheck to your 401(k) can cause you to quickly max out to the allowable annual deferral limit and, potentially, lose out on employer match contributions.
The information provided herein is general in nature and is for informational purposes only. It should not be used as a substitute for specific tax advice that considers all relevant facts and circ*mstances. You are advised to consult a qualified tax professional before relying on the information provided herein.
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