401K Question...

[58-4ever]

my employer offers matching funds up to 5 percent of my total income. Should I have them do this with pre-tax money or post-tax money?

[KC Kings]

Originally Posted by ChiefsfaninPA

To help you better I want to explain two things off the bat. One I have a B.A. in accounting so I know a little something about this and two I do all of our retirement benefits for the State so I deal with this daily. If you are investing in a 401k it is ALWAYS pre-tax. That is how the IRS defines it in Section 401 of the tax laws. Now in the last year Congress has approved the use of a Roth 401k which works the same as the 401k EXCEPT your contributions are taxed first. That way when you do retire and make withdrawals (which on a Roth of any type, whether 401k or a regular Roth) you do not pay taxes. The only benefit to the Roth IRA or Roth 401k, besides having tax free withdrawals, you also do not have a minimum you must withdrawal yearly. A 401k has a certain amount you must take out yearly when you reach a certain age (70 1/2). Another factor is your income. .

Is the Roth IRA the one that can be used for your kids college with no penalties? I am currently putting in 8% pre-tax with employer matching 4%, but I am thinking about putting anything over 4% into a post-tax Roth IRA. My wife stays at home, I have 2 kids, and last year I only paid $200 in federal taxes. That is not paying $200 at tax time, that is getting everything that I paid back, except for $200. I actually paid more to Kansas City than I did to federal. This year I will be able to claim an additional kid, and we moved so I will have about $15000 in interest that I can claim, so I should pay even less. I don't have a lot of cash to put away right now, but want to take advantage of my nearly tax free status right now, and get some money in a post tax program.

[DRU]

I have my own 401k question to add to this...haven't read through all of this so I don't know if it's come up.

My withholdings come out of my check each week. My employer, though, doesn't deposit the money into my 401k but once a month. During that time, my money (as well as everybody else who works here and is in the plan) just sits either in their interest earning bank account, or it gets invested into their own accounts and then transferred into my own. This means that during that time my employer is actually earning a return on my money.

Is this standard practice for employers?

[ChiefsfaninPA]

Originally Posted by DRU

I have my own 401k question to add to this...haven't read through all of this so I don't know if it's come up.

My withholdings come out of my check each week. My employer, though, doesn't deposit the money into my 401k but once a month. During that time, my money (as well as everybody else who works here and is in the plan) just sits either in their interest earning bank account, or it gets invested into their own accounts and then transferred into my own. This means that during that time my employer is actually earning a return on my money.

Is this standard practice for employers?

Yes. The 457(b) plan I contribute to does the same thing. It is perfectally legal as well. It is the same as depositing money in a bank and they hold it for a day or until the next business day without crediting your account and letting it accure interest.

[ImuMamalukabubuday]

Originally Posted by alnorth

You can not put money into a 401k and an IRA in the same year. (rollovers dont count, you can have both if you quit, roll the old 401k into an IRA, get another job, and start funding the new 401k. The IRA is still sitting there earning money with what you put or rolled into it).

I just wanted to touch on this. You CAN put money into a 401k AND an IRA in the same year. Right now, you can put $15,000 into a 401k and $4000 into an IRA. You just can't deduct the money you put into an IRA from taxes IF you are enrolled in a workplace retirement plan (401k). But there are no regulations in place prohibiting you from contributing the max amounts to both.

[DRU]

Yes. The 457(b) plan I contribute to does the same thing. It is perfectally legal as well. It is the same as depositing money in a bank and they hold it for a day or until the next business day without crediting your account and letting it accure interest.

The example you give here seems a little different than the scenario I'm talking about. You say that a bank can hold the money for a day or so without depositing it, so for that time you wouldn't earn any interest until the money is actually in your account. But that's it, I myself, simply don't earn interest until it's there.

In this case, though, the employer is earning an interest return on everybody else's money until they deposit it into everybody's accounts. That's like if I was the middle-man on somebody else's 401k. They give me THEIR money, which I put into my own bank account for half a month, during which time I'm making money off of THEIR money before actually depositing it into their own account.

That just seems wrong to me. I'm new to it all, so that's why I'm asking, but it just seems like they're smoking us for that extra interest. We have about 350 employees here, most of which put money into this 401k. So if 300 people are putting approximately 5% of their checks into the 401k each week, and that money actually sits in the employer's bank account instead of going directly into our 401k accounts, the employer is making money off OUR money.

That's our hard earned money that we're putting aside for OUR benefit. Why should the employer be able to earn interest that we ourselves could earn if the money was in our own account the whole time?

[DRU]

I guess I'm kind of confusing interest baring accounts with a 401k. Seems like the employer is earning interest with our money in their bank account, but if the money was in our 401k the entire time it would benefit us, not the employer.

Let's say my 401k is invested in a stock that hits big one day. Well if some of my money is still in my employer's account instead of my own then I miss out on that extra money...even though it's mine to begin with.

[runnercyclist]

Pretax and contribute just a bit more than you think you can afford.

[ChiefsfaninPA]

Originally Posted by DRU

I guess I'm kind of confusing interest baring accounts with a 401k. Seems like the employer is earning interest with our money in their bank account, but if the money was in our 401k the entire time it would benefit us, not the employer.

Let's say my 401k is invested in a stock that hits big one day. Well if some of my money is still in my employer's account instead of my own then I miss out on that extra money...even though it's mine to begin with.

Exactly. They don't have to deposit that money the exact day they take it out of your paycheck. They usually transfer the money twice a month to the brokerage. It is unfair but perfectly legal. All of the days that the money sits in their account you get nothing on it. The only law I am aware of is that the money has to be put there in "fair amount of time".

[MahiMike]

My advice on 401K? Max it out baby. Also, see if they offer a brokerage account where you can pick your own stocks. You don't want to get stuck with only a few options when there are 10,000 funds out there. My brokerage account made 24% last year. If I had used their stocks...Well, I don't even wanna know...

[MTG#10]

Bumping this old thread instead of making a new one.

My previous employer of the last 15 years didnt match our 401k so excuse my ignorance on this.

My new employer that Ive been with for a year and a half or so supposedly matches our 401k contribution up to 3%, so I decided to have 3% deducted from each check. Today I received my first check since enrolling and noticed my employer matched exactly half of what I had taken out (1.5%). Do I have to have 6% taken out to get the full 3% my employer is supposed to match or did I get screwed?

Asking here first because I'd rather look like a moron here than to the head of HR.

[MahiMike]

Originally Posted by MTG#10

Bumping this old thread instead of making a new one.

My previous employer of the last 15 years didnt match our 401k so excuse my ignorance on this.

My new employer that Ive been with for a year and a half or so supposedly matches our 401k contribution up to 3%, so I decided to have 3% deducted from each check. Today I received my first check since enrolling and noticed my employer matched exactly half of what I had taken out (1.5%). Do I have to have 6% taken out to get the full 3% my employer is supposed to match or did I get screwed?

Asking here first because I'd rather look like a moron here than to the head of HR.

If you put 3% in they should also put 3% in. Some companies do this at end of fiscal year. Ask HR for clarification.

[mdstu]

I'd be willing to bet that they match 50% of what you put in, up to 6%.
Meaning you put in 6% they put in 3%. Alot of companies do it this way.

[Coach]

Originally Posted by mdstu

I'd be willing to bet that they match 50% of what you put in, up to 6%.
Meaning you put in 6% they put in 3%. Alot of companies do it this way.

That's kind of how I figured it works out.

Say, I put $250 from my pay to my retirement. They put in 3% from that $250. At least that's how I interpret it.

[mdstu]

My company puts in 3%, plus another 50% of what I put in up to 6%.
So as long as I'm putting in 6% they are putting in 6%.
That is 6% of my gross pay including overtime. Alot of companies will only match base pay.

I put in what ever the max amount that the government allows for the year. This year is $18k.

[Buehler445]

Originally Posted by MTG#10

Bumping this old thread instead of making a new one.

My previous employer of the last 15 years didnt match our 401k so excuse my ignorance on this.

My new employer that Ive been with for a year and a half or so supposedly matches our 401k contribution up to 3%, so I decided to have 3% deducted from each check. Today I received my first check since enrolling and noticed my employer matched exactly half of what I had taken out (1.5%). Do I have to have 6% taken out to get the full 3% my employer is supposed to match or did I get screwed?

Asking here first because I'd rather look like a moron here than to the head of HR.

Match means dollar for dollar typically, but it matters how it is set up, you're just going to have to ask your plan administrator, probably HR.