How much money do you calculate it would be for you this year? How about in three years when the DC goes to 18%? I have never seen a single dollar of excess cash so I’m curious what kind of money people are planning on seeing the next couple years. I have a hard time believing investing this excess cash is going to prevent someone from going on a vacation. And no one should be buying anything above a Miata anyway.

 

What's the math for junior new guys. Barely have any idea what this thing even is.

 

For 2023 the max anyone can put into a 401k is 66,000. This includes company contribution (DC) and employer contributions. Also, the company can only contribute to your 401k on income up to 330,000. Since they are contributing 16% of your income, that means that the max the company puts in is 52,800 (16% of 330,000). So in order to max out your 401k this year an employee would need to contribute an additional 13,200.

Now three things happen that cause you to get DC excess. One is if you hit the 66,000 contribution limit. Generally you do this by maxing out your individual contribution limit of 22,500, then when the company contribution hits 43,500 (so 66k total), you start getting the 16% as DC excess on your paycheck. The second thing that can happen is you hit the 330,000 income limit, and at that point any company money is paid out as DC excess plus. Both DC excess and DC excess plus are taxable, but I only 1 also gets ALPA dues/DPMA dues taken out. Off the top of my head I can't remember which one.

The third option you'll see thrown around is the mega backdoor Roth (MBR). In this scenario you contribute your own money to an after tax 401a, then immediately roll it out to a Roth IRA. I believe that the employee can contribute up to 66,000 of their own money, but of course every paycheck starting at the beginning of the year has company money going as well counting against your 66k limit. Thus you hear that people are trying to "race" the company to the 66k limit by putting as much of their own paycheck in each pay period starting in January to limit the amount of company DC that goes into the 401k. If you are super aggressive (putting 75% of each paycheck into your 401k) and put as much of your profit sharing check in as well, you can hit the 66k limit fairly early in the year and will end up with a significant amount of DC excess paid out for the rest of the year.

So as a new hire at least for a few years you probably won't be hitting the 330,000 income limit, but it is a little easier to hit the 66,000 cap. If you contribute the full 22,500, then you only need to earn 271,875 to get the 16% DC to fill up the rest of the 43,500 to hit the 66,000 limit. Still probably not going to do that for a few years unless you're taking a quick upgrade. And generally most new hires are not able to be super-aggressive on the mega backdoor Roth for a few years until their pay comes up.

So, you can extrapolate some of that out based on expected earnings throughout your career. Also the company DC going to 17% next Jan and then 18% in 2026 will lead to more people getting excess, plus with higher pay rates it will be easier for more pilots to hit the earnings cap. Almost every single CA should be getting some amount of excess. FO's can as well if they go for the MBR, or if they're just crushing it on earnings with green slips, profit sharing, etc, but again most FO's won't see excess for a while outside the MBR. I'm at year 7 and have yet to ever get excess.

 

Here's the fund details.
https://www.blackrock.com/us/individ...-portcl-k-fund
As others have said, the share class is unknown.

 

i think you would be surprised at how much money it is for some senior pilots.

 

Buy, Borrow, Die. Definitely the best way to avoid taxes and pass on generational wealth.

 

All of this makes my brain hurt. Can anyone boil this down to a few sentences, and explain it like we know nothing about investing?

I don't have time to go get an MBA in finance before this decision is required, nor do I want to. All of these typical APC "I'm right and you're stupid" rabbit hole debates on this topic aren't helpful for those of us trying to figure out what it means.

If only the union put out an easy to read guide.

Maybe we can get Home Depot guy to do a video. He seems to know a lot about RNAV approaches and stump grinders.

 

If you are a “day trader” or other style of aggressive investor, opt out.

If you have a large amount of real estate, opt out.

If you put your money in index funds or target date funds, stay in.

The plan is beneficial for the last 10-15 years (or possibly 10-15 years prior to 59 1/2 pending the in service withdrawals).

So the older you are, the more likely this is good, and the younger you are you need to see if the down line benefits are worth short term compromise.

Im in my early 40s and probably staying in, pending some analysis.

 

Your excess DC money will go into a tax advantaged account after you reach the IRS 401k limits. Our DC contributions have become more (for some) than the IRS allows in the 401k limited by 3 numbers $330K annual earnings, $66K total annual contributions and $22.5K annual personal contribution. This is the way to get more tax and dues advantaged money into retirement funds where it was meant to be. Some people are upset they will no longer get the excess as a cash payout which was spendable/investable cash. The investment is conservative and meant to maintain principle and a return below what some would like. This doesn't affect people who make less than $330K and that number increases annually along with the other limits.

Here's a high earner example for 2023. $400K earnings = $64K DC. $70K @16% = $11.2K into MBCBP. The company will deposit $52.8K on the first $330K earned into the 401K. The individual could make personal contributions up to $13.2K to max out the $66K limit. As the company percentage increases more $ will go to 401k . The same for the IRS limits, which increase annually. The problem most have with this is that there is no choice in which investment, all excess funds will be invested in the fund chosen for everyone. It is set up like a pension fund in your name, in that capital preservation and a modest return removes the risk from the funds being unavailable.

 

Thanks. This definitely helped. But why do people want DC excess? And why is it better for me to put my paycheck dollars into it versus letting the company fill it up? And lastly, how does all this relate to this new market based blah blah plan?