I know that it is a retirement account, so why cant someone put like $10,000 in at once if they have the cash? Also what happens if you do overpay, why is it even possible to overpay in the first place?
In: Economics
The US government created these tax-deferred and tax-advantaged savings accounts to encourage middle-class people and their employers to save for retirement and take advantage of some tax relief as they age.
What they very specifically *didn’t* want to do was give the wealthy an additional lever to pull to try and dodge taxes.
So 401k and Roth accounts have annual contribution limits intended to cap the amount you put in at something relatively reasonable for the upper-middle class. We don’t want Jeff Bezos putting 80 billion dollars in a Roth IRA so it can grow tax free or attempting to defer millions of dollars on executive compensation into a 401k.
It’s possible to overpay because the government doesn’t know how many jobs you have or if you plan to work at your current job all year. Maybe you’re planning to leave in July so you set the withholding rate really high because you need twice the money to make up for no withholdings in the back half of the year.
Then you change your mind and stay, and overpay.
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