Author Topic: What does this mean to defer in a 401k  (Read 1015 times)

soccerluvof4

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What does this mean to defer in a 401k
« on: December 06, 2017, 11:46:28 AM »
So my DW went back to work about a year ago because HC concerns and she really likes it.  They use Voya and its loaded with Vanguard funds so thats good. 

With most of our Assets being in taxable accounts i thought it would be a good idea to build up or 401ks.  The only think i didnt like was 1) 6 years to be a 100% (0% first year and 20% each year after that) invested and she might not stay there and then 2) I honestly do understand this. Might seem simple to some but can you explain it to me please, specifically what does defer mean and or good? bad? indifferent?-

Safe Harbor Matching Contribution for the 2018 Plan Year: For the 2018 plan year, your employer will provide you with a matching contribution.  The matching contribution will be a dollar-for-dollar match on your salary deferrals up to 3% of your compensation plus a 50% matching contribution on your salary deferrals over 3% and up to 5% of your compensation. 

For Example:  Assume you earn $40,000 in compensation for the 2018 plan year and you elect to defer $4,000 or 10% of your compensation into your employer’s Plan.  Your employer will provide you with a total matching contribution of $1,600. That’s a $1,200 match on the first $1,200 you defer plus $400 on the next $800 you defer.

Other contributions: Your employer will not be making any additional employer contribution for the 2018 plan year.


VESTING & DISTRIBUTIONS

Vesting: You are 100% vested in your 401(k) salary deferrals or Roth 401(k) salary deferrals and your Safe Harbor Matching Contributions at all times.  Your vested percentage in any additional employer match or profit sharing contributions is based upon the vesting schedule outlined in your SPD.

Distributions: You generally may not withdraw your 401(k) salary deferrals or the Safe Harbor Matching Contributions except if you terminate your employment, your death, disability or, if your plan allows, the attainment of age 59½.  For additional information on your distribution options, please consult your SPD.

POTENTIAL REDUCTION OR SUSPENSION OF SAFE HARBOR MATCHING CONTRIBUTION

If your employer decides to reduce or suspend the Safe Harbor Matching Contribution during the 2018 plan year by adopting a plan amendment, you will be provided a notice at least 30 days before the effective date of the change.  The notice will outline your options regarding your salary deferral contributions.
« Last Edit: December 06, 2017, 11:49:13 AM by soccerluvof4 »

seattlecyclone

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Re: What does this mean to defer in a 401k
« Reply #1 on: December 06, 2017, 12:35:20 PM »
"Deferrals" is just another word for "the contributions you make out of your paycheck." Does it make sense now?

MDM

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Re: What does this mean to defer in a 401k
« Reply #2 on: December 06, 2017, 12:44:10 PM »
Also, her contributions and those "Safe Harbor" matching contributions are 100% immediately vested, by law.

See https://www.employeefiduciary.com/blog/safe-harbor-401k-plans-answers-to-common-questions, https://www.irs.gov/retirement-plans/plan-sponsor/401k-plan-overview, etc.

soccerluvof4

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Re: What does this mean to defer in a 401k
« Reply #3 on: December 06, 2017, 12:55:29 PM »
Also, her contributions and those "Safe Harbor" matching contributions are 100% immediately vested, by law.

See https://www.employeefiduciary.com/blog/safe-harbor-401k-plans-answers-to-common-questions, https://www.irs.gov/retirement-plans/plan-sponsor/401k-plan-overview, etc.
"Deferrals" is just another word for "the contributions you make out of your paycheck." Does it make sense now?


Makes sense and I will check out that link. Thank you both!!

Acastus

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Re: What does this mean to defer in a 401k
« Reply #4 on: December 12, 2017, 12:12:59 PM »
The deferral means you defer paying taxes by diverting some salary into a 401k. You will pay taxes when the money is removed from the 401k. If your spouse leaves the company before being vested, you will lose part of the company match. Your own contributions are yours to keep.

Babybalrog

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Re: What does this mean to defer in a 401k
« Reply #5 on: December 12, 2017, 01:06:14 PM »
Safe Harbor Matching Contribution for the 2018 Plan Year: For the 2018 plan year, your employer will provide you with a matching contribution.  The matching contribution will be a dollar-for-dollar match on your salary deferrals up to 3% of your compensation plus a 50% matching contribution on your salary deferrals over 3% and up to 5% of your compensation. 

For Example:  Assume you earn $40,000 in compensation for the 2018 plan year and you elect to defer $4,000 or 10% of your compensation into your employer’s Plan.  Your employer will provide you with a total matching contribution of $1,600. That’s a $1,200 match on the first $1,200 you defer plus $400 on the next $800 you defer.

"Defer" means you postpone taxes until you take your money out of the account. It also lowers your taxable income, so in the example above, deferring $4,000 would lower taxable income to $36,000.

Quote
"6 years to be a 100% (0% first year and 20% each year after that)"

Other contributions: Your employer will not be making any additional employer contribution for the 2018 plan year.

VESTING & DISTRIBUTIONS

Vesting: You are 100% vested in your 401(k) salary deferrals or Roth 401(k) salary deferrals and your Safe Harbor Matching Contributions at all times.  Your vested percentage in any additional employer match or profit sharing contributions is based upon the vesting schedule outlined in your SPD.

These actually go hand in hand. My reading is that there are 3 sources of funds in your 401k: Those you choose to DEFER, the MATCH the company makes under the Safe Harbor Rules, and ADDITIONAL which is profit sharing in good years. The company makes a decision about how much it will share each year. There is no additional in 2018. Each has a separate vesting time.

what you DEFER is 100% vested the day to defer, it is yours if you leave the company
what your company MATCHES on what you defer is also 100% your if you leave it is yours
any ADDITIONAL profits shared are vested over 6 years. So if you leave too soon, you only get a portion. This is not unusual.

Quote
Distributions: You generally may not withdraw your 401(k) salary deferrals or the Safe Harbor Matching Contributions except if you terminate your employment, your death, disability or, if your plan allows, the attainment of age 59½.  For additional information on your distribution options, please consult your SPD.

POTENTIAL REDUCTION OR SUSPENSION OF SAFE HARBOR MATCHING CONTRIBUTION

If your employer decides to reduce or suspend the Safe Harbor Matching Contribution during the 2018 plan year by adopting a plan amendment, you will be provided a notice at least 30 days before the effective date of the change.  The notice will outline your options regarding your salary deferral contributions.

Last part sounds pretty standard IRA boiler plate.

That's my interpretation. I hope it helps