Originally Posted by
Merequetengue
Hey guys, I spoke with a couple of pilots who mentioned that they try to maximize their 401(k) as early in the year as possible (ideally within the first six months), even though the company’s 17% would fully maximize it by the end of the year. Does anyone understand that strategy? What’s the benefit, or did I misunderstand? All this retirement plan stuff is new to me, so I’m just trying to learn from people with more experience. Thanks in advance!
Couple things, here we go.
1. RHA is triple tax-advantaged, but you must use the money for medical purposes in retirement (the list for legal uses is pretty robust). The RHA is an important medical backstop, whether you’re lucky enough to have Tricare like me or not. Even with Tricare, $100-200k in an RHA might be a prudent idea. However, the RHA is NOT part of your estate, so when you and your eligible beneficiaries pass away, the balance goes back into the trust and NOT paid to your heirs.
2. The company must put their 17% into your 401k until it’s full ($70k). When it’s full there are a few spillage options, one being the RHA, another will soon be the MBCBP. The Cash Balance Plan will be invested similarly to the RHA in mostly conservative accounts and is available to move into your 401k or an IRA when you turn 59 1/2 including while still working for UAL. If you choose to leave it there (I don’t recommend this) and you pass away, the MBCBP is still part of your estate, and WILL pass to your heirs.
3. If you want to maximize your tax advantaged investment opportunities, utilizing the RHA and MBCBP is an integral part of that strategy. You cannot put your money directly into either, it has to come from the 17% the company adds to our paycheck. To do this, quickly front loading the PRAP is crucial.
For what it’s worth, here’s my technique to get money where I want it, yes this takes some planning and full disclosure is much easier as a USAF retiree.
1. Beef up your bank accounts Oct-Dec to cover the bills Jan-Mar.
2. Your Dec paycheck pays out in Jan (into the 401k).
3. Set your 401k to pre- and post-tax contributions as 100% of your pay. Also, make sure to set up the auto-conversion to Roth, which happens immediately when any post-tax money hits your account.
4. When we get the Profit Sharing email in February, set it to go 100% to your 401k.
5. Work your ass off Dec-Feb, depending on your seniority you should be close to $70k and start being paid again in March.
6. Your spillage will go to the RHA until we get the MBCBP option, do the research for what makes sense for you and choose wisely.