Can’t add to my 401k… is this normal?

General
1

I work as a bartender and my employer offers a 401k plan through Human Interest. I make $2.13/hour and bring home my tips in cash. Because of this, my entire paycheck goes to cover FICA and taxes, leaving me with $0 from payroll.

When I asked about contributing to the 401k, I was told it must come directly from payroll, and I can’t just add my own money to it. Is this really how it works? It seems like I should be able to put in money up to the yearly limit even if it’s not payroll-deducted. I know I wouldn’t get a company match, but shouldn’t I still be able to contribute?

Would appreciate any advice or thoughts. Thanks!

2

That’s correct. 401k contributions are only through payroll deductions, either pre-tax or Roth. You might want to consider opening a personal IRA or Roth IRA instead.

3

Bryn said:
That’s correct. 401k contributions are only through payroll deductions, either pre-tax or Roth. You might want to consider opening a personal IRA or Roth IRA instead.

I already did and maxed it out at $8,000. A 401k would let me invest around $23k more tax-deferred.

4

@Christopher
If you’re under 50, the IRA limit is $7,000, so you might need to take $1,000 out.

5

Ainsley said:
@Christopher
If you’re under 50, the IRA limit is $7,000, so you might need to take $1,000 out.

I’m 53, so I qualify for the higher limit. And I’m trying to save as much as possible because I’ve started late and don’t have much.

6

@Christopher
That’s tough. I used to bartend too, so I get it. Hang in there.

7

Ainsley said:
@Christopher
That’s tough. I used to bartend too, so I get it. Hang in there.

Thanks. It’s frustrating because I finally have the money to invest, but they’re telling me I can’t use the 401k. So annoying.

8

@Christopher
Why not just put it in a brokerage account and buy something like the S&P 500?

9

Oli said:
@Christopher
Why not just put it in a brokerage account and buy something like the S&P 500?

I already do (VOO), but I want the tax advantages of a 401k.

10

Are all your tips paid in cash? Some restaurants let employees get credit card tips added to their paycheck for cases like this.

11

Lex said:
Are all your tips paid in cash? Some restaurants let employees get credit card tips added to their paycheck for cases like this.

All my tips are claimed as income but paid out in cash, so my paycheck ends up being $0.

12

@Christopher
That makes it tough. Unless your employer changes the system to pay tips through payroll, I don’t see an easy fix.

13

Lex said:
@Christopher
That makes it tough. Unless your employer changes the system to pay tips through payroll, I don’t see an easy fix.

Yeah, I can’t ask them to change it because every other bartender would be furious with me.

14

Ty said:
Why not start claiming more of your tips so you can contribute to the 401k?

I already claim all my tips, which is why my paycheck gets eaten up by FICA and taxes.

15

Christopher said:

Ty said:
Why not start claiming more of your tips so you can contribute to the 401k?

I already claim all my tips, which is why my paycheck gets eaten up by FICA and taxes.

If tips go through payroll, a portion could be held back for 401k contributions. But yeah, it has to go through payroll.

16

So your whole paycheck really goes to FICA and taxes? I’ve never worked as a bartender, so I’m curious.

As for your question, yes, 401k contributions have to come from payroll. You can’t just deposit cash into it. There’s also a yearly contribution limit—around $23k if you’re over 50. You might consider putting extra cash into a Roth IRA instead since the growth is tax-free.

17

@Drew
Yes, my paycheck is completely wiped out because I claim about $1,000/week in tips.

I already maxed out my IRA. I just want to contribute to a 401k as well.

18

Christopher said:
@Drew
Yes, my paycheck is completely wiped out because I claim about $1,000/week in tips.

I already maxed out my IRA. I just want to contribute to a 401k as well.

So you get no paycheck at all? Or is there a small amount left that could go toward the 401k?

If you do get anything, maybe you could set up a small contribution and use your cash tips to cover taxes at the end of the year?

19

@Drew
My check is always $0 because my claimed tips are high enough to eat up my hourly pay. There’s nothing left for a 401k.

20

Maybe update your W4 so less is withheld from your paycheck. Then you can contribute to the 401k and pay taxes quarterly.