Author Topic: Best way to take advantage of employer match?  (Read 1434 times)

krt1989

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Best way to take advantage of employer match?
« on: October 20, 2018, 08:42:02 AM »
Hi Everyone, new here and hoping to pick your brains!

I recently took a new job that provides a 50% match to 401k investments with no cap or vesting schedule. I am not sure what contribution type I should utilize to take best advantage of the situation. In the past I have done Roth contributions but that was because I was hitting the matching cap regardless (6%). A little background on myself, I am currently 29 with about 100k in a personal vanguard account.
My big question is does it make more sense to make traditional contributions to get the maximum match out of my employer or continue down the Roth path as I am young and the tax savings will outweigh the discrepancy in the match. My current plan is to contribute $1500 per month if I go traditional or $1000 per month for Roth.

Thanks in advance for the advice!
-Kyle

RWD

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Re: Best way to take advantage of employer match?
« Reply #1 on: October 20, 2018, 09:15:58 AM »
Unless you are in a very low tax bracket Traditional is usually better than Roth.
https://www.madfientist.com/retire-even-earlier/

With no cap on the match you should contribute as much as possible ($18,500 for 2018). That will get you a free $9,250 (per year) which is too good to pass up.

MustacheAndaHalf

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Re: Best way to take advantage of employer match?
« Reply #2 on: October 20, 2018, 09:20:04 AM »
Employer match is always put into a Traditional 401(k), in case that matters to your thinking. 

Since this is the most generous 401(k) plan I've heard about, I want to confirm that you mean contributing the 2018 401(k) limit of $18,500 will result in a $9,250 employer match? Make sure you get all of that +50% match, even if you have to resort to Traditional 401(k) contributions.

$250 tip: make your Traditional 401(k) contributions $1,550/month, rather than $1500/month.  You'll get $9,250 of matching instead of just $9,000.

terran

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Re: Best way to take advantage of employer match?
« Reply #3 on: October 20, 2018, 09:20:44 AM »
As RWD said, traditional is usually as good or better than Roth anyway unless you plan to spend totally unmustachian gobs of money in retirement, so add on an instant 50% return via the match and I have a hard time seeing how it wouldn't make sense. Of course, if you can afford to max it out either way then you're back to normal traditional vs Roth decision, but again, that's usually in favor of Traditional.

The employer match will be traditional whether you contribute to Roth or traditional.

The max is $18.5k in 2018 and likely to be $19k in 2019.

TheHardenedInvestor

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Re: Best way to take advantage of employer match?
« Reply #4 on: October 20, 2018, 11:05:09 AM »
Best way to get employers match = get maximum employers match.

MDM

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Re: Best way to take advantage of employer match?
« Reply #5 on: October 20, 2018, 01:39:55 PM »
...continue down the Roth path as I am young and the tax savings will outweigh the discrepancy in the match. My current plan is to contribute $1500 per month if I go traditional or $1000 per month for Roth.
Taking those numbers at face value, your current marginal tax rate (combination of federal+state+local) is 33%.  Most (e.g., see also Traditional versus Roth - Bogleheads in addition to RWD's link) would suggest traditional will work better for you, regardless of your current age.  Do you have a specific reason (with at least a back-of-the-envelope support) to think otherwise?

krt1989

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Re: Best way to take advantage of employer match?
« Reply #6 on: October 21, 2018, 01:00:35 PM »
Thank you!

Confirmation that $18,500 in contributions will garner a $9,250 employer match.

I was looking at numbers and believe I could get away hitting $18,500/year in ROTH contributions but it would take away available funds to pump into a new home and our renovation budget. I am starting to think my best course may be to contribute traditional to max out the benefits, retain a little bit of extra cash in my pocket monthly and I believe push myself into the next lower tax bracket. (New job has me at $110,000 salary yearly).

There was no particular reason I have been doing Roth contributions other than everyone says when you are young Roth is better because you will likely be in a higher tax bracket in retirement. Thinking about that sentiment a little bit more, I may be at about the break even point, my current earnings feels like a comfortable place to be in retirement.

MDM

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Re: Best way to take advantage of employer match?
« Reply #7 on: October 21, 2018, 01:13:20 PM »
Confirmation that $18,500 in contributions will garner a $9,250 employer match.

I was looking at numbers and believe I could get away hitting $18,500/year in ROTH contributions but it would take away available funds to pump into a new home and our renovation budget. I am starting to think my best course may be to contribute traditional to max out the benefits, retain a little bit of extra cash in my pocket monthly and I believe push myself into the next lower tax bracket. (New job has me at $110,000 salary yearly).

There was no particular reason I have been doing Roth contributions other than everyone says when you are young Roth is better because you will likely be in a higher tax bracket in retirement. Thinking about that sentiment a little bit more, I may be at about the break even point, my current earnings feels like a comfortable place to be in retirement.
With $27,750/yr going into a traditional account and earning 5% real, it would take ~24 years before a 4% withdrawal rate on that alone would start to incur 22% federal tax, and ~34 years before reaching 24%.

Whether that means you should use traditional or Roth now depends on how you look at it.  How does it look to you?

krt1989

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Re: Best way to take advantage of employer match?
« Reply #8 on: October 21, 2018, 02:17:22 PM »
It's feeling more and more like traditional is the way to go. At age 29 now I would hope I can retire by 55, that being said I am an engineer so we are known to work forever.

RWD

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Re: Best way to take advantage of employer match?
« Reply #9 on: October 21, 2018, 02:45:33 PM »
There was no particular reason I have been doing Roth contributions other than everyone says when you are young Roth is better because you will likely be in a higher tax bracket in retirement. Thinking about that sentiment a little bit more, I may be at about the break even point, my current earnings feels like a comfortable place to be in retirement.

You only need to replace your spending in retirement, not your earnings.

MustacheAndaHalf

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Re: Best way to take advantage of employer match?
« Reply #10 on: October 22, 2018, 11:29:09 AM »
Also keep the Roth Conversion ladder in mind.  Even if you contribute to a Traditional 401(k) now, when you hit a lower tax bracket in retirement you can fill the lower brackets with Roth Conversions.