Originally Posted by
Vikz09
You are correct. You can have anywhere from 0%-100% of the profit sharing put directly into your 401k. I did 100% last year to avoid the taxes on the bonus which tend to be higher than your tax bracket. Bonus money seems to be taxed at roughly 30-40 % which you can recoup some of that on year end taxes.
I have recently flown with several guys who are only contributing to the ROTH 401K (after taxes) because they hit the IRS limit by September. May as well keep putting money in year round but when you make 250k and the company contributes 15% the company is alone putting away 37500 per year toward your IRS limit of 52k. May as well put the 14.5 into a ROTH 401K
. Unfortunately, I do not have this same dilemma.
Don't confuse "withholding" on your profit sharing with tax rate.
Your profit sharing that you don't put in your 401k is just income....just like your regular paycheck, when you get your W2 at the end of the year(OK, January for previous year). The difference is that a profit sharing payout has a fixed mandatory 25% federal withholding taken out + state(GA=6%) + FICA(7.65%) + ALPA dues (1.9%). So for example a GA resident gets hit with 40.55% withheld from that PS check + DPMA dues on the amount if you're in that. But when you do your taxes the following year, the profit sharing is just part of your W2 earnings and the 25% they withheld is just part of your total federal tax withheld on the W2. How much fed tax you really end up paying on the PS is a function of what tax bracket you ultimately end up in after all your deductions...
Don't forget that the PS is pensionable as defined in the PWA so you get an extra 15% of the PS amount into your 401k.