Originally Posted by
BLOB
Two pilots walk into a bar both wearing new approved jackets with epaulets on them so we know who the captain is. In our story both wear 4 stripes. Pilot K works for company X and Pilot F works for company F.
Pilot K says, "I make $275,000 as a WB captain and I get 8% in a B fund. We've got a pension too. I put $18,500 in my pre-tax 401K. The company puts $22K in that B fund and I get to put another $14.5K of my money in after tax 401K and immediately roll it to a Roth. I'm pretty happy with my compensation package and I sure wouldn't want to raise my B fund because next year I won't get any cash over the cap and I really like my tax deduction for my pre-tax 401."
Pilot F says, "Wow, I make $275K at my company too. We have a pension too and I get a 20% B fund. The company puts $55K into my B fund. I use the extra $33K for whatever I want. One year I used it for my back door Roth. One year I funded my kid's college fund. One year, I took a vacation. It's just nice knowing that I'm fully funded to my 415c limits without using any of my income, salary, compensation (you pick the word). It was also very nice when I was an FO not making $275K because the company was putting more into my B fund earlier in my career and I hit that $55K limit sooner."
Questions
1. Which pilot in our story is better off?
2. Which one drinks the $200 bottle of champagne?
3. Which one will live under a bridge and eat cat food in retirement?
Answers
1. Too early to say. Depends on who better chooses what to do with the money they have been given and if they end up with 3 ex-wives, but Pilot F has more money at the starting line. He uses some of the money he doesn't have to put into his 401K to pay the taxes of converting some of his previous savings to Roth to avoid taxes on the back side and prevent required minimum distributions. If the government doesn't change the rules before he retires, this too might help him.
2. Pilot K buys the bottle because his buddy told him that $200 bottles of champagne are great and he took his word for it....and he bought the mega millions lotto ticket.
3. Neither should be in this predicament. We really do have first world problems so let's not kill each other in the circular firing squad. Hopefully we can negotiate something that helps us all without messing things up too badly in the process.