Increased my net worth $7K/year

[Cheddar Stacker]

We recently met with our 401K providers and as a plan administrator and part owner of the business I have control over employer contributions. I'm also fortunate enough to earn a bonus at the end of each year. Due to safe harbor rules I will be able to make a sizable employer contribution to my 401K account (essentially in exchange for a chunk of the bonus) to reduce my AGI substantially, which reduces the taxes I'll pay on this bonus down to $0.

I just ran this through my year end bonus, tax, and net worth spreadsheets and project approximately $7K/year in increased net worth. I realize this puts funds into a tax deferred vehicle and I'll pay tax upon withdrawal, but since I plan to implement a Roth pipeline 20 years before normal retirement age I hope to keep those taxes extremely low. They will certainly be much lower than my current calculated effective rate on the last dollar of earnings.

This wouldn't have happened without learning these tricks via this forum, the MMM website, and other PF bloggers, so I'm really sharing the badassity of this entire community. It's good to be an insider into this world, and to be able understand and implement these strategies.

Thank you all for sharing your knowledge.

[EscapeVelocity2020]

Gotta love the big, low risk wins.  Hope the 401k has good options and low fees, since it sounds like you'll be shoving a lot of retirement funds in.  The only bit that bums me out is that it's the people that really need these wins that are unlikely to find them or have an advisor.  And I wish you could do this for me, that would be nice also :)  Thanks for sharing

[Cheddar Stacker]

Thanks for the reply EV. I'm hoping someone else might read this and be able to implement something similar.

Fees are reasonable enough - just under 0.50% for plan administration, then expense ratios from each fund but we have 6 Vanguard index funds to choose from, along with plenty of managed funds with reasonable returns and expenses.

I wish everyone could do this. I wanted to offer it as an employee perk as well (i.e.-take a lower taxable wage in exchange for an increased safe harbor match) so I asked the TPA if anyone else at the firm contributes the full $17,500. I was a bit disappointed to hear no one else maxes out their contribution other than the owners, so I guess I wouldn't get any interest even if it was offered. There are plenty of others who make a nice salary and could afford to max out.

If you work at a small enough employer it might be worth talking to HR to see if anything like this might be possible??

[teen persuasion]

Thanks for the reply EV. I'm hoping someone else might read this and be able to implement something similar.

Fees are reasonable enough - just under 0.50% for plan administration, then expense ratios from each fund but we have 6 Vanguard index funds to choose from, along with plenty of managed funds with reasonable returns and expenses.

I wish everyone could do this. I wanted to offer it as an employee perk as well (i.e.-take a lower taxable wage in exchange for an increased safe harbor match) so I asked the TPA if anyone else at the firm contributes the full $17,500. I was a bit disappointed to hear no one else maxes out their contribution other than the owners, so I guess I wouldn't get any interest even if it was offered. There are plenty of others who make a nice salary and could afford to max out.

If you work at a small enough employer it might be worth talking to HR to see if anything like this might be possible??

I think this is very common, unfortunately.  DH got a nastygram from his agency earlier this year, that he had contributed too much to his 401k and had to remove some, which made no sense - they had stopped contributions at the max.  It seemed he'd run afoul of some fiscal year max (they used a July 1 fiscal year, and he's a teacher, so he has 13 paychecks before July and 8 in the fall plus a small raise plus a change to the 401k limits).  In speaking to the agency CFO/owner of the 401k management company, DH got the distinct impression that he was the only one to max his 401k!