Originally Posted by
dalad
Once you reach the 415C limit, the company pays you an additional 15% as straight pay making my effective rate for the last 4-5 months $253 an hour for this year. The early profit sharing was worth 15K for me. I am at 275k now.
Originally Posted by
Jughead135
Say again?
Understood that the 15% comes as taxable pay once the limit is reached. Isn't that just a question of where the same total amount of money went? In order to reach the limit, money that would otherwise have shown up in your checking account instead showed up in your DPSP--on a dollar-for-dollar basis. In other words, the total amount of income that qualifies for 15% company contribution is unchanged, and 15% of that amount is 15%, regardless of in what form it's paid.
Yes/no? I'm new, and I'd LOVE to be wrong about this. Are you saying perhaps that the 15% earns its own 15% when it's paid directly? (Not my understanding of how it works, but again, happy to learn if I'm wrong!)
I've been thinking about this as I try to determine how best to manage my retirement plan--and, I have to say, on further reflection: you're doing it wrong.
Any amount you contribute to the DPSP that "forces" some amount of the company contribution to come to you directly is counter-productive. Your total income stays the same; your total added to your DPSP likewise stays the same; but your
taxable income for the year increases dollar-for-dollar for any amount of the company contribution coming in your paycheck
instead of into the DPSP account, as follows:
- Your 401(k) elective deferrals are pre-tax, i.e., reduce your taxable income dollar-for-dollar. Assume for this discussion that the max is reached ($17.5K for 2014, $18K for 2015), but so long as the same dollar amount is contributed in either scenario, the result is the same.
- Any "401(a)" contributions you make are post-tax (come from taxable income).
- Any company contributions to the DPSP are pre-tax (do not add to your taxable income).
- Any company contributions directly to you are taxable income.
- None of these affect your total income; the question is how much is your taxable income.
- The "instead of" bolded up there refers to those earning enough that the 15% company contribution results in at least the difference between the max limit & the elective deferral limit ($52K - 17.5K = $34.5, which is 15% of $230K [2014 numbers]); in this case, the 15% company contribution money coming directly to you still adds to your taxable income, but you've already maxed out the pre-tax account (i.e., good problem to have!).
Assuming the "ideal goal" is to max the elective deferral, max your total DPSP contribution, and
minimize taxable income: one should hit the max elective deferral AND contribute enough to the 401(a) to reach the limit ($52K for 2014, $53K for 2015), WITHOUT contributing "too much" and forcing the company match to come in the paycheck. In practice, that may be tough to calculate, since our pay can vary from month to month and the company contribution is percentage-based....
For those fortunate to reliably make enough that the company match alone will hit the limit, this is a non-issue. The rest of us need to watch it more closely.
Either way, contributions to the extent that it precludes the company match from going into the DPSP is counter-productive, since it increases your taxable income without any increase to your actual total income nor to your total account contribution.
...or, am I missing something??
Perhaps you're in the category of having reached the limit without any after-tax contributions??
[EDIT: Which, perhaps, is what you meant here:
Originally Posted by
dalad
Now that I've filled my retirement accounts to the 415c limit my effective rate on the 7ER is now $253 an hour.
Sorry if I misunderstood what you meant by "filled" re the taxable income issue; however, your post is what prompted me to think about it, and I've heard/read of others "increasing" their pay via this method.]
(all number ignore "catch-up" contributions for age 50+; since those don't count against the limits, simply add them to the totals if appropriate)