Originally Posted by
Merequetengue
so in your case, the advantage of maximizing early is to spill on the HRA that I'm assume is tax free? Or what's the difference or disadvantage if you let the company maximize your 401k, and you save the 23k on your bank account and use it for medical bills if needed?
thanks for your time and wisdom.
Yes, the spill to the Active HRA is tax free and can be used for eligible medical expenses.
The maximum the company can contribute will not max out the 401k. For 2024, the maximum eligible compensation limit is $345,000. 17% of that is $58,650 below the 401k cap for both under 50 and over 50. In order to maximize it, an employee would have to put in something. How much will depend on whether the pilot wants to have spill or not into the Active HRA or RHA.
I'm over 50, so it's actually $30,500 for me this year ($31,000 in 2025). By putting the money in now while I'm in my prime earning years in the highest tax brackets I will be, I save income taxes on $30,000+ per year. I wil pay taxes on that money in retirement when I'm certainly not going to be making the money I make now and I'll be in a lower tax bracket. And this money has the opportunity to grow before retirement. If I decided to have this as take home pay, with federal and my local taxes that will turn into less than $20,000. Putting that into a basic savings or money market account will not come close to off setting the taxes on that, plus I have very few health care expenses at all.