Originally Posted by Qotsaautopilot

Let's make this with clean examples.

Earnings $250,000 and a goal of a 16% contribution from spirit into your 401k

16% DC: $250,000 X .16 = $40,000 from spirit alone

You can still put in $13,000 of your own money if you like to reach $53,000 which is the max you and the company can put in combined but you aren't required to. The other $5,000 you currently put in because you max out you could put into an IRA or any other investment. Point is you didn't leave any of spirits money on the table.


9% match and 7% DC:

$200,000 X .09 = $18,000
$200,000 X .07 = $14,000
$50,000 X .07 = $3,500. (They didn't match this money because you already maxed out when you earned $200,000)

Total $37,500 from spirit. You lost $2,500.

You actually lost more because in order to get your full match on that first $200,000 you put in $18,000. $18,000 + $37,500 = $55,500. The IRS max both you and the company can put in is $53,000 so you lost another $2,500 of spirits money. A total of $5,000 less than a straight DC plan even though at face value the percentage looks like the same 16%. So you would want to contribute less to get all of the possible money you can from spirit but you can't contribute less here because you have to put in 9% to get your full match in this scenario.


5% match and 11% DC:
$250,000 X .05= $12,500 from Spirit
$250,000 X .11= $27,500 from spirit

Total $40,000 total from spirit

You got all 16% in this scenario because at a 5% match you only were forced to contribute $12,500 to get the full 5% from spirit and that didn't max you out before you earned $250,000 for the year. They also gave you the full 11% DC because you didn't hit the $53,000 combined limit (you hit $52,500). You have an extra $500 you can throw in to this account but then will have the extra $5000 like the first scenario you have to take to an Ira or blow on hookers. Point is you didn't leave any of spirits money at the table.

The more you make the lower the matching percentage must be to not leave money on the table in a hybrid plan. 5% match works at $250,000 yr earnings but at anything more the match has to be less. That's why the legacies didnt negotiate hybrid plans. They didn't want to be getting less money in retirement contributions as a result of negotiating higher rates. They also didn't want some to get the full 16% ( the lower earners) and some not get the full 16% (the higher earners) because of technicalities in our contribution rules. Better just to go with 16% of everything you make and let you decide what you want to do with your money. Invest in your 401k if you have some space before you hit $53000, put the more in an IRA, invest in real estate, buy hookers, whatever.

I understand you wanting to reduce your taxable income with retirement contributions but it shouldn't be done at the expense of leaving free money on the table. Also, it's only tax deferred. You will pay taxes on that money and everything it earned when you withdraw it in retirement. You're just delaying the inevitable is all. IMO one should use the Roth option in our 401k and pay taxes on that money now (assuming you're not close to retirement). That way you can withdraw it in retirement tax free along with everything it earned along the way. That's the real big advantage, the earnings being tax free. We can obviously speculate how tha part of the tax code could change in the future but that's how it works now. I'm also not a professional but I'm sure a financial planner would recommend the same to most people with some time to retirement.