Violet Sky

Every year since 2020, I’ve looked forward to hearing the new 401k and IRA limits being announced. “Looked forward” is a strong statement, I suppose – I’ve anticipated the announcement and taken note when it arrived. There are several sites/entities that spend the entire year predicting the increase for the next year, so it’s usually not a surprise by the time it’s announced in November.

In any case, this number typically roughly tracks inflation and notches increases in $500 increments as appropriate, so it’s not necessarily that we’re getting a lot of extra space, so much as it is that we’re being allowed to increase our contributions to keep pace with inflation. (Whether our salaries also keep pace with inflation is another story) It’s unusual, then, that you find yourself with true extra tax-advantaged space available, especially without changing jobs.

Oddly, I found out this month that that very thing has happened to me! I’ve worked for the same company for the last 4.5 years and the entire time, we’ve had a specific calculation available to use to “max” our Mega Backdoor Roths:

mbdr_max = 69,000
401k_max = 23,000
maximum_eligible_salary = 345,000
match_percentage = 0.4

artificial max = mbdr_max - 401k_max - (maximum_eligible_salary * match_percentage)

// artificial_max = 32,200

This made rough sense to me, as it meant that nobody at our company or at our 401k provider would need to calculate each individual employee’s personal max. I say “rough sense” because it’s just a math equation, and both my payroll division and my 401k provider have record of exactly how much all of us makes, so while it seemed a little lazy, it at least made sense in that context.

With zero fanfare and, as far as I can tell, zero announcement, that artificial cap was lifted some time this year. Luckily, my company also has an investing Slack channel, so someone from benefits left a comment buried in a thread explaining that the cap no longer existed when someone asked why their contributions were allowed to exceed the artificial max this year. For me, this opens up approximately $6000 in additional space this year! Whether or not I take advantage of that space this year will remain to be seen, but at least I have another lever I can pull if I’m getting bored with the Boring Middle in the future.