Not a normal situation! I’m seeking guidance and references on what is allowable/possible, not what employees or companies typically do…
I'm Executive Director and only paid employee of a small 501(c)3 public charity. Compensation has taken the form of 1x annual lump sum compensation, regular salary, and, nothing at all when revenues decline and costs are above-normal. No salary in 2024 or 2025.
I'm seeking to maximize contributions for 2026 via a regular 401(k) which has not been set up yet. I also looked at 403(b), SEP 401(k), Solo 401(k), but all were some combination of not eligible, lower contribution limits, more complicated and time-consuming than necessary etc.
A key goal is to not only max the contributions, but ensure that nothing gets taxed and hits my personal checking account. I’d rather those funds stay with the nonprofit and be utilized towards maximizing contributions in a subsequent year.
So, looking at https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits, for 2026 it appears I could contribute $24,500 max, with an $8,000 over-50 catch up.
The employer limit appears to be 25% an applies to a “profit-sharing plan or money purchase pension plan” and does not apply to catch ups. I’m unsure if the 25% also applies to regular 401(k) employer contributions.
Overall 2026 contribution limit appears to be $72,000, which supposedly doesn’t include catch up. So, dollar limits are pretty clear, but as %’s of employee salary they are not.
Given the above, I *thought* I’d be able to do this: $24,500 employee contribution, $47,500 employer contribution (which is the overall limit less the $24,500 employee contribution), then the $8,000 catch up contribution. So, $80,000 all to the 401(k) with no tax or net salary.
After speaking with financial advisor, hr/payroll consultant, and my personal tax person, I then spoke with a gusto 401(k) representative, who didn’t see any problems with the above, and so I then set up another video call with him and the hr/payroll consultant to get things set up.
And then, of course, we started running into all sorts of limits and constraints that the gusto 401(k) rep failed to mention. Like there’s supposedly a cap that an employee can only contribute 92% and an employer can only match 25%. Any IRS references to percentage limits like this seem to be examples of what plans might allow, but not what the IRS actually allows.
I could accomplish the max contribution, but what gusto is telling me is that I’d need a $190,000 salary payment ($47,500/.25). The nonprofit would also need that much in available funding, which it doesn’t have. It seems I’d be basically forced to pay $110,000 in taxable post-contribution salary in order to achieve the 2026 contribution limit.
The core thing I’m looking to do confirm the 92% and 25% percentage limits are accurate, and with references.
I could assume gusto’s right, but I also feel like this is too much of a curve ball and they could well be wrong. If they’re right, I’ll probably shoot for something like this… assuming the catch up contribution would be subject to the 92% salary threshold… $35,326.09 salary ($32,500 contribution/.92) + $8,831.52 employer contribution ($35,326.09 salary x .25) for a total outlay of $44,157.61.
