Author Topic: Is the 18K before or after Employer Matches?  (Read 2563 times)

SyZ

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Is the 18K before or after Employer Matches?
« on: October 25, 2016, 09:48:34 AM »
So I'm looking over my 401(k) statement, and here's what it says:

YTD Contributions: 14k, consisting of -

$10,131 my contributions,
$2,161 company contributions (they haven't matched this years yet, they do the full 5% in the early months of a Calendar Year)
$1,727 Roth contribution

I'm confused on how much I've actually put in from my paychecks. $10,131 + $1,727/tax bracket = total I've contributed? Is this the amount that's supposed to be $18k, or it's $18k - the $2,161 the company put in, and then next year if they put in, say, $3k, I need to put in $15k myself? Etc.

Thanks

Proud Foot

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Re: Is the 18K before or after Employer Matches?
« Reply #1 on: October 25, 2016, 09:52:57 AM »
The 18k is the individual amount.  What the employer matches does not effect the 18k you can contribute.  And the 18k is for all of your contributions, both pretax and Roth.  And the amount you have actually contributed would be the $10,131 + $1,727.

TheAnonOne

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Re: Is the 18K before or after Employer Matches?
« Reply #2 on: October 25, 2016, 09:53:15 AM »
You can contribute 18, and the employer can add above and beyond that.

The true limit between you + match is in the mid 50k range.
« Last Edit: October 25, 2016, 09:55:22 AM by TheAnonOne »

BigHaus89

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Re: Is the 18K before or after Employer Matches?
« Reply #3 on: October 25, 2016, 10:33:04 AM »
Other posters have the answer. Any reason you are doing Roth 401k contributions?

Jack

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Re: Is the 18K before or after Employer Matches?
« Reply #4 on: October 25, 2016, 10:47:57 AM »
The sum of traditional and Roth employee contributions must be less than or equal to $18K.

The sum of traditional and Roth employee contributions, employer contributions, and after-tax contributions (which nobody else has mentioned yet) must be less than or equal to $53K.

These limits apply summed across all accounts -- if you have two 401ks at two different employers, the allowed employee contribution is $18K total, not $18K per account.

Also, if you're 50 or older you can make an extra $6K "catch-up" contribution.

SyZ

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Re: Is the 18K before or after Employer Matches?
« Reply #5 on: October 25, 2016, 01:41:00 PM »
So I can put $18k of my own money in there, which can be allocated in any % between pre-tax and post-tax. If I put $18k pre-tax, then I'll get dinged later. If I want to put in $10,724.43 pre-tax and $7,275.57 post-tax, then the $10,724.43 will get dinged later and the $7,275.57 is safe.

That means that, when I retire, let's say $1M is in there, $700 normal and $300 Roth. That means it's considered just one giant $1M account, but I get taxed on 70% of whatever I take out? Let's say I'm in the 20% tax bracket, and I want to get $25k a year cash, I would need to withdraw $29,069.76, which would lower the balance to $970,930.24, and then I would need to earn at least 2.994% interest that year to grow back to the $1M.

The reason I am putting some into the Roth is I have no idea where I will be in 34 years. I can't even plan out my weekend plans for Halloween. I have not seen any valuable tools to help with this. See previous paragraph: I have no idea if my split should be 900 / 100, 700 / 300, 1000 / 0, etc.

It seems like I'm trying to hedge against something I don't know. Paying all the taxes now is my option premium. I can either lose big and drop in the tax bracket at retirement and I paid extra taxes now than I could have then. Or I could win big and taxes go to 70% and I already paid mine. And because a stock has a 50/50 shot to either go up or down, I arrived at a 50/50 split between pre and post tax contributions.

Could be 100% completely wrong like most of what I post about on this site, though

seattlecyclone

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Re: Is the 18K before or after Employer Matches?
« Reply #6 on: October 25, 2016, 02:09:12 PM »
I think for an early retiree with a high savings rate, the general assumption should be that you're going to have a lower tax bracket at retirement because your taxable income probably won't exceed your spending (unless you have a pension or something giving you some unavoidable income), while your taxable income now is probably higher than your spending. Everyone is different though. I suggest you think of where your taxable income (if any) will be coming from during retirement and how much you expect that to be. If you're 100% Roth, your income will be a big fat zero and you'll be wasting a bunch of space in low tax brackets.

robartsd

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Re: Is the 18K before or after Employer Matches?
« Reply #7 on: October 25, 2016, 02:13:00 PM »
The reason I am putting some into the Roth is I have no idea where I will be in 34 years. I can't even plan out my weekend plans for Halloween. I have not seen any valuable tools to help with this. See previous paragraph: I have no idea if my split should be 900 / 100, 700 / 300, 1000 / 0, etc.
Most here argue that Traditional is better than Roth most of the time. This assumes 1) US tax rates won't change drastically in the future and 2) your expenses in retirement will be much lower than your current taxable income. Even if your future marginal tax rate will be exactly the same as your current marginal tax rate, Traditional wins based on exemptions, deductions, and progressive tax rates (your first dollar earned is taxed at a lower rate than your last dollar). Add in strategies like Roth conversion pipelines and Roth contributions while earning your career income tend to make little sense (except IRAs when your income is too high to deduct Traditional IRA contributions).

SyZ

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Re: Is the 18K before or after Employer Matches?
« Reply #8 on: October 25, 2016, 02:20:58 PM »
The reason I am putting some into the Roth is I have no idea where I will be in 34 years. I can't even plan out my weekend plans for Halloween. I have not seen any valuable tools to help with this. See previous paragraph: I have no idea if my split should be 900 / 100, 700 / 300, 1000 / 0, etc.
Most here argue that Traditional is better than Roth most of the time. This assumes 1) US tax rates won't change drastically in the future and 2) your expenses in retirement will be much lower than your current taxable income. Even if your future marginal tax rate will be exactly the same as your current marginal tax rate, Traditional wins based on exemptions, deductions, and progressive tax rates (your first dollar earned is taxed at a lower rate than your last dollar). Add in strategies like Roth conversion pipelines and Roth contributions while earning your career income tend to make little sense (except IRAs when your income is too high to deduct Traditional IRA contributions).

Not to poo-poo everyone on this site, but a base gut check doesn't reflect that with me

Now:
- Good health
- No kids
- No wife
- No mortgage
- No traveling / spending any of my earnings on anything other than funding retirement

Retiremement:
- Worse health, unknown by how much
- >= 0 kids
- >= 0 wifes
- >= 0 mortgages
- >= no traveling
- Actually spending the money I saved

How could my expenses then possibly be less than now?

seattlecyclone

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Re: Is the 18K before or after Employer Matches?
« Reply #9 on: October 25, 2016, 02:37:26 PM »
Whether your retirement expenses are lower than your current expenses is mostly immaterial. The question is whether your retirement income (as declared on your tax return) will be lower than your current income (as declared on your tax return). Remember that when you're retired you don't need to devote any of your income toward saving for retirement; all of your income can go to fund your current spending.

Every dollar you withdraw from a Roth account won't count as income, so it's likely that your income will in fact be less than your spending. Compare that to now where your income is higher than your spending.

robartsd

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Re: Is the 18K before or after Employer Matches?
« Reply #10 on: October 25, 2016, 02:49:33 PM »
How could my expenses then possibly be less than now?
Your future expenses don't have to be less than your current expenses; your future expenses have to be less than your current taxable income. The only factor current expenses play is determining if you have enough earnings left over to maximize contributions to tax advantaged accounts. Very few people save a bunch of money while working then retire and spend money faster than they earned it.

One of the few advantages of Roth over Traditional is that the contribution limits are the same - this means that Roth accounts have a little more tax advantaged space on an after-tax basis. If you're pretty certain that you won't save on taxes by deferring them to retirement and you save enough to max out your tax advantaged accounts, Roth would have an advantage.

Jack

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Re: Is the 18K before or after Employer Matches?
« Reply #11 on: October 25, 2016, 02:55:06 PM »
That means that, when I retire, let's say $1M is in there, $700 normal and $300 Roth. That means it's considered just one giant $1M account, but I get taxed on 70% of whatever I take out? Let's say I'm in the 20% tax bracket, and I want to get $25k a year cash, I would need to withdraw $29,069.76, which would lower the balance to $970,930.24, and then I would need to earn at least 2.994% interest that year to grow back to the $1M.

No, it should be in two separate [sub-]accounts and you can selectively withdraw different amounts from the traditional or the Roth depending on how you want to be taxed that year.

Your future expenses don't have to be less than your current expenses; your future expenses have to be less than your current taxable income. The only factor current expenses play is determining if you have enough earnings left over to maximize contributions to tax advantaged accounts. Very few people save a bunch of money while working then retire and spend money faster than they earned it.

Exactly. Said another way, the imprecise "expenses now. vs expenses later" rule of thumb only works for "normal" people who save close to 0% of their income!