I recently sold a rental property and have a surplus of cash sitting around. If possible, I'd like to make a lump sum contribution to my employer's 401(k) plan.
Is that possible? Or would I need to increase my contribution percentage a whole bunch and live off the cash surplus for a while?
Contributions to 401k plans have to come from the wages that the employer is paying you, and cannot be made from external funds. Many plans will allow for a large percentage to be withheld from a single paycheck or from the remaining paychecks for the current year, and for that time, you can live off the surplus of cash from the sale.
The response that your employer will only allow your wages from that employer to be put into a 401k is probably half true. You have to earn at least the amount you put into a 410k, but the source of the money may not have to be your wages from THAT employer.
When it comes to 401k plans, if you want to put the maximum into your retirement account, you'd have to earn at least that amount with the employer who sponsored the plan. You mostly likely cannot put the maximum amount into the account ahead of your earnings. For instance, if you earn $60k/year with an employer and want to contribute the maximum into your 401k in January, your employer may not allow that because there hasn't been enough time in the year for you to EARN the maximum amount from that employer.
If you skip contributing to your employer plan for half the year and decide in July you want to make the max contribution, as long as you've earned at least that amount with your employer, you can use money you earned from a bake sale to come up with the money to make a max contribution. It's called a catch up payment. You would simply subtract your 401k contributions from your total income, including the bake sale income. This way you're not deducting from wages you earned from your employer AND your bake sale income.
