Hey Bro, you finished with your 88 training?

 

Yeah, Kinda wish I had went ahead and bid something more laid back since it seems seniority will be coming sooner rather than later. Being the plug of a category didn't sound very enjoyable. I hear there will be some really good stuff to bid coming fairly soon though so I'll just wait it out here

 

Don't confuse "withholding" on your profit sharing with tax rate.

Your profit sharing that you don't put in your 401k is just income....just like your regular paycheck, when you get your W2 at the end of the year(OK, January for previous year). The difference is that a profit sharing payout has a fixed mandatory 25% federal withholding taken out + state(GA=6%) + FICA(7.65%) + ALPA dues (1.9%). So for example a GA resident gets hit with 40.55% withheld from that PS check + DPMA dues on the amount if you're in that. But when you do your taxes the following year, the profit sharing is just part of your W2 earnings and the 25% they withheld is just part of your total federal tax withheld on the W2. How much fed tax you really end up paying on the PS is a function of what tax bracket you ultimately end up in after all your deductions...

Don't forget that the PS is pensionable as defined in the PWA so you get an extra 15% of the PS amount into your 401k.

 

True dat and if you put your PS into your 401K you've essentially "prefunded" your 17.5K for the year (under 50) so you will just reach the limit earlier in the year from regular paychecks. After you reach the limit there will be no more of your own money set aside, only company money. Uncle Sam needs his money!

 

How is it any "extra" in the long run?

 

If you are making 250k a year, you don't qualify for a ROTH anymore.

 

There's no income limit for making Roth 401K contributions.

 

A few comments from what I've read on this thread. It seems I read this stuff over and over and it's not clearly understood......

If you're a high earner, if all you care about is making tax free withdrawals when you retire (assuming you meet the requirements for the Roth withdrawal to be tax free), sure contribute to the Roth. Uncle Sugar is happy to have you pay higher taxes now then you might otherwise in the future. I don't get the fascination with the Roth. It's a tool in your financial toolbox. For some, it's a great tool. For others, not so great. Contributing to a Roth is not necessarily your best option unless you just enjoy paying taxes. If I was making $250K, I doubt I'd be contributing to a Roth unless I was going to be making a crapload of money in retirement or there was some extenuating circumstance.

If you get a lump sum of money and a large percentage is withheld, it doesn't mean you're paying that % in tax. The amount of tax you are going to pay is the sum of lines 45 and 46, shown on line 47 of your 1040. It doesn't matter if your employer withholds 100%, 0%, 25%, one dollar, or a million dollars. You go into the tax tables with the number on line 43, and that's the base tax you're going to owe (assuming no "other taxes" which applies to few). If a lot is withheld, you get a lot back or you owe less. If a little is withheld, you get less back (or owe more).

Contributing to a Roth 401K doesn't get you around the 415c limit. It's $52K for 2014. If you're 50 or older and you contribute to a 401k, you can exceed that 415c limit by the catch-up amount of $5,500.

 

For example, if your PS amount is $10,000 DAL puts an extra $1500 into your 401k. Total $$ from the PS payment then is $11,500. We have a 15% DC plan and the PS payout is treated like regular compensation so we get a 15% DC contribution from the profit sharing. That 15% is extra money above and beyond the profit sharing amount. Or maybe I'm missing your point?

 

Nice post. IOW, you can't have a valid investment plan until you have an effective tax strategy.