IRS Limits?
 

Is the advice to not take out more than 5% for after tax savings still good?

I ask because someone said that the IRS limit for the B-fund (the max pay limit) went up, and I thought it might be possible to hit the 401k cap before you hit the salary cap if you are saving the 5%.

Since we don't get paid cash over cap, I don't want to cheat myself.

Also, is there a place to easily figure out how much the company has put into our B-fund year to date? It sure would be nice if it was listed on my pay stub.

It is on the second page. Listed as PSRP Emplyr

Vanguard too


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OK, adding the number from the second page and the 18000 and 6000 and 5%, I think I am over the limit.

What is the max 401K contribution amount for an over 50 guy?

I think I may have already cheated myself out of some pay...

Thanks for the info.

OK, I found it on the Vanguard Site.

$60,000 total if you fall under the catch up rules.

$270,000 max pay.

Unless I miscalculated, 5% after tax should not push me over 60k until after I hit 270k.

It's $60K for us geezers. $54K for the under 50 crowd.

The 5% contribution should keep you safe, $270K is the max income basis this year:

$18K(401k) + $6K (CU) + $270K*.08 (B plan) + $270K*.05 (after tax) + $500 (401k match) = $59,600 which squeezes you in under the $60K cap.

Same math works for the youngsters, since they don't get the $6K catchup but are also limited to $54K. 5% after tax keeps you safe (this year).


Edit: Sorry, looks like you found the answer while I was gonkulatin', plus I fat fingered the age.

I'm not clear on what you're trying to calculate. Would you mind backing up a few steps and trying to lay it out in detail (maybe like you were writing one of those "For Dummies" books :D)

50 is the catch-up contribution limit age.

Is there a reason why FedEx pilots don't want to contribute more than the 415(c) limits?

Possibility of losing the full B fund amount that the company provides. Once you hit the limit, B fund monies stop.


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Yeah. Once a pilot hits either the $60K contribution limit (over age 50) OR the $270K income limit, the company stops B fund contributions, and we have no cash-over-cap; so maxing out the contribution early end up leaving company-provided money on the table.

Plus, we want to spend our money on hookers and scotch.

We are talking catch-up bracket so the correct order is scotch and hookers.

So the union wants us to go to an all B Fund with a newly developed plan to replace our current AFund and B Fund. Seems like most do not even know what we got going on now or how to correctly manage it. If you do not know how to calculate what the company puts in your B Fund each paycheck, where to find out your totals on the vanguard account you are doing yourself a huge financial disservice. We negotiated and you work for your money, spend the time to learn how to manage it, not just how to spend it on hookers and booze!

I am pretty sure what they are talking about is still considered an A Plan. They are not talking about changes to the B Plan.

Ok.
So we're basically talking about how much after tax $$ we can tap off our income stream to put into our B-fund before we hit limits that stop company contributions. This, if I'm not mistaken, is just another investment vehicle at that point (since the money is already taxed and future withdrawals receive no special tax treatment).

I like the B-fund and I max out my pre-tax contributions but, personally I prefer to diversify my after tax investment vehicles. I also believe there are better ones out there. YMMV.

Look at it like this:

$54,000 IRS 415C limit (those under age 50)

$270,000 income *.08 (B Fund) = $21600
401K contribution $18000
401k FDX match $ 500
Extra 5% of income (270k max) $13500
TOTAL $53600
50 and over catch up $ 6000
NEW TOTAL $59600

This allows you to stay under to IRS 415C limit of $54000 of those under 50 and the $60000 age 50 and up.

Yes, it meets the IRS requirements of an A plan, but like our B plan, we assume 100% of the risk. Unlike our B plan, someone else gets to decide how to invest the money and gets paid regardless of how it performs.

I am simply correcting incorrect information. I neither approve or disapprove of the proposal as I haven't seen it yet. It is not how I would proceed, but who knows till it is published.

For those who have maxed out sick leave banks, those distributions get added to this total also.

True, but if sick bank buy back goes over the limit (60k for catch up guys, 54k for under 50 guys), they'll just pay you the difference.

Adler, Just wanted to make sure you were aware that these after tax contributions can be rolled into a Roth IRA. It's a pretty good method to fund a Roth

How does one go about doing that?

At one time I was told that you could not withdraw the after tax contributions separately, or that you would have to pay tax on the gains. I might be wrong, but please provide more info.

Also, have any over 50 guys investigated the Roth 401K option? Does it make any sense for us old guys?

I am trying to educate myself, but I don't trust financial advisors to give me the straight skinny, they seem to all want to get their hands on my money, and I don't trust them with it.

I like Vanguard due to the low fees.

Yes you will have to pay a tax on the gain. Vanguard will walk you through it. As to the over 50, I guess it depends on when you plan on spending it. I would recommend it.

Thanks, Lag.

It should like I should wait until retirement to do that when my taxable income will go down?

Is that what you did?

I think if I do it now, I will get stuck with higher taxes. Perhaps I can wait until the tax year after I retire when my bracket should be lower.

When I talked to Vanguard they said the law had changed and you can roll it all into a Roth IRA and they can step you thru the process. You will pay tax as others above have said. I plan to do it the year after I retire when my taxable income will be lower. I'm trying to max out the after-tax until retirement to take advantage of this.

If you have some post tax money in there; go to the vanguard site, manage my money, loans and withdrawals (I think). Put in for a withdrawal and it will show you the estimated tax you will pay before you execute it. You may be surprised at how little the tax actually is, but either way you can make a good guess on the tax you will pay to convert it now. Yes I convert some every year, the year over year gains aren't that much.

Thanks Lag and Knight.

I have been doing the "back door Roth" IRA conversions for the last several years.

Do you guys know if the after tax conversion to Roth has an upper limit?

Or if it will affect the limits on my back door Roth conversions?

This might help:
https://www.irs.gov/retirement-plans...-make-for-2017

Rollover contribution do not count towards limits. But vanguard was very helpful and will answer all your questions.

If you are rolling out of the Pilot Retirement Savings Plan, to IRAs, you can take any after-tax balance and split the rollover to a Traditional IRA for the earnings and a Roth IRA for the principal. There is no tax consequence. If trying to leave it within the PRSP, you cannot split the earnings and principal.
Vanguard will have you set up a separate Roth IRA and a separate Traditional IRA outside the PRSP, and this is where the split will go.

This has been verified thru our R&I committee.

Keep in mind that if you want to rollover your 401k when you retire to your own IRA, you have to split out the after tax 401k monies into a ROTH IRA at that point. You can't wait and do it later---forbidden by the IRS.

This is a common misnomer that used to apply years ago. Now days if you retire with a retirement plan like we have, your tax bracket will either be the same or maybe 1-2% lower. There is no reason to wait for tax savings down the road. They won't be there.

When you retire you will lose most of the deductions you were accustomed to having while working.401(K), business deductions, state income tax(where I live), and interest on your home as hopefully it will be paid off. In our fifth year of retirement and we are paying the same rate we did the last year I worked.

Let me start with I am not expert. I spent a lot of time plugging in numbers to a spreadsheet (yes I built one) trying to solve this question. I am over 50. The bottom line was for normal rates of return 7-13% there was not that much difference between the two investment option in terms of what you get after taxes down the road. Most of the time the Roth 401k gave more per year but in the low hundred maybe as much as $250 dollars more.

Now there are a couple points that make that true. For the two plans to be similar, you must be investing the tax savings back into the plan. For example, if your tax savings on 23K is 8K, you must invest that 8K back into your 401k as after tax savings. If you do not invest the tax savings, then the Roth 401k kills and there is no comparison. The Roth will crush the traditional 401k.

The deciding factor for me was the fact that I don't have mandatory withdrawals from the Roth 401k like I will with the traditional 401k. That means hopefully, I never have to withdraw that money and it's there for my wife later down the road.

If you're still working at 70 1/2 there is no RMD from a Roth 401K. If you're retired, there are RMD's. (tax free) RMD's can be avoided by rolling the Roth 401K into a Roth IRA.

I don't know, it depends upon the situation. Depending upon your income before retirement (which often includes spousal income), you could easily be in the 39.6% top bracket, and drop down to the 28% bracket. That is, unless tax rates change....and who knows how to plan for that?

However, I think it's a really good idea to convert IRA's to a Roth, the sooner the better, unless one is going into a lower tax rate pretty soon, as long as one has the money to pay for taxes. We converted an IRA into a Roth several years ago, sucked it up and paid the taxes, and now it's worth triple the value. I would not want to pay taxes on the higher amount! If only the market would massively crash, we'd convert everything we could, and pay less in taxes.

All of my IRA's have been converted to Roth IRA's, and I have been doing the back door Roth from 2012.

I have not done a Roth 401K, but I am considering it.

I max out my 401K contributions each year.

Does the $60K limit apply to the Roth 401K as well?

I have almost maxed mine out for the year, but am considering Roth 401K for next year.

Thanks for all the gouge.

Yes, the total amount that the employee and employer can contribute toward any defined contribution plan is $60k if you are 50 or older.

Why are you considering changing to Roth 401k now? I'm assuming you're in a high bracket now, so just asking to see if you've considered the tax consequences.

I thought I would put my after tax 5% into a Roth 401k.

I am paying taxes on it anyway...

I will move the rest in retirement, unless the tax laws really change.

Is there somewhere to see what each year's pensionable earnings are (what the "High-5" is based on). I know we get a letter in the mail every year, but mine is nowhere to be found.

There used to be on the green screen but I haven't been able to get it to work in a couple of years. I haven't found anything similar on the replacement.