zlacker

Income contributed to a 401k is not taxed at the time of earning. Not putting a limit on contributions would mean you could pay very little income tax. A wealthy person making 200k a year could contribute 100k to their 401k and more than halve their total income tax paid.

>>Manuel+(OP)
But OP's point is that the 200k a year person could instead negotiate a 100k salary with an additional 100k into the 401k (by the employer) and that would be allowed.

Edit: Although it does appear there is a cap to the employer's contribution ($69,000 for 2024 [1]). But I think the general point still stands, why bother to have employer and employee limits.

[1]: https://www.irs.gov/retirement-plans/plan-participant-employ...

>>lesuor+d1
Well… they could negotiate $70k/yr from the employer, and that would be allowed (in 2025) without further employee contributions (as that hits the total max contribution limit).

A $200k/yr employee with no employer contribution would be limited to $23,500 contribution (in 2025 limits).

[edit] actually that’s not quite true, though, because IIRC contribution rules have to be uniform, to avoid horse-shit like maxing out upper management at $70k and contributing nothing for lower-level employees, limiting them to $23.5k tax-advantaged no matter how much hard try to save, I.e. to prevent the whole damn scheme from benefiting mostly the already well-off more than it’s probably going to regardless.

>>Manuel+(OP)
>A wealthy person making 200k a year could contribute 100k to their 401k and more than halve their total income tax paid.

They'll pay it when they take it back out. At best they're saving the difference between the bracket rates in exchange for letting your money slosh around the markets for your working life.

>>potato+gb
401k is taxed at the time of withdrawal, but that's usually at a lower tax bracket.

500k in income 1 year is ~$162k in income tax.

500k in income split across 2 years is $68.5k each year totalling $137k.

It's not massive but it's still a decent chunk of taxes people can avoid.