As stated above, one of the best things you can do is max out your 401k. The amount generated by your longevity will be impressive. I know, bills to pay, but put in as much as you can afford up to the limits. The payout will be ginormus.

This 100%. Check out "The Three Fund Portfolio" on Bogleheads.org. All you'll ever need. Rebalance as necessary as the years go by.

Just as compound interest does wonders over the long run, compound fees have the same effect negatively. 1% fee doesn't sound like much but compounded over time it is an enormous amount of drag on a portfolio. You want max lift with minimal drag on your money.

Thanks a lot for all the advice, I’ll have lots of reading to do on my next layover. Anyone have any recommendations on investments outside of the PRAP? I’m looking at 529s, IRAs and the like. Or is maxing out the 401(k) more advantageous? I currently do 5% and plan to increase as my longevity increases. I did speak with Schwab and they helped with balancing. We also have a plan to speak every July around my longevity date.

Sorry for all the questions, I’m a novice when it comes to all this. I didn’t pay close attention to it at my previous jobs and my own prior research left me probably more confused than before I started. But I am grateful for all the advice and will start studying up soon!

Your new short term goal should be to increase your contributions to the annual IRS max as quickly as possible. The more you save while young pays HUGE dividends when compounded tax free. Once you get to that point, then start looking at "post tax" contributions to a non-retirement investment account.

Ditto for 529s. Depending on your state you may, or may not, also receive a tax benefit.

Worth repeating.

Pay yourself first. Don't pay anyone else unless absolutely necessary.

While it’s an unthinkable 40 years away, these early vectors will make all the difference. In your reading look at the tax consequences of Required Minimum Distributions (RMD) starting at 70 1/2. Roth IRAs don’t have RMD. One way to push funds into that is to max out the pretax 401k (required for this strategy), then elect the company 16% (and any extra your budget allows) to go to "voluntary post tax" in the PRAP election page. When the year is done this can then be rolled over into a Roth account within the PRAP. Google "backdoor roth" although it’s not backdoor anymore as the new 2017 tax law made this basically front door.

Let me get this straight. I’m new to United, but have been doing Backdoor Roth IRAs for years, just not 401k’s. I’ve also never had company contributions to a 401k to deal with.

For example: Assume the company puts 16k in my PRAP this year. If I elect to make it “voluntarily post tax”, I can then roll it at the end of the year to my Roth 401k account within the PRAP, without tax implications other than the fact the company has not been withholding for that 16k?

Can I roll previous PRAP contributions that were “traditional” also into the Roth 401k pot? Assuming, I’m willing to pay taxes as regular income on that recharacterization?

Also, some posters said avoid the Schwab Target Date Funds, why?

I know you should never get tax or investing advice from a bunch of pilots on a public forum

Time to call Schwab...

Thanks.


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As to the first question, yes. I do that and it’s a single page authorization form to do it. It’s called an In Plan Roth conversions. As to the second question, I’d say yes as well, but a call to the Schwab rep would be in order. With $10B managed for UAL pilots, they are very responsive. The R&I Booklet is must reading for all this, pages 11-24 in particular.

(800) 724-7526

“Post-Tax
At any time, you may elect to contribute from 1% to 100% of your eligible compensation (less your required taxes and deductions) on a post-tax basis. However, no post-tax contributions will be deducted from your paycheck until you have made the maximum possible pretax/Roth 401(k) deferral contribution for the year (for 2019: $19,000 if you are under age 50; $25,000 if you are 50 or older). Once you have reached these applicable limits, post- tax contributions will begin as of the next payroll cycle. As a result, pretax/Roth 401(k) contributions and post-tax contributions will not be deducted from the same paycheck.

The post-tax balances will be held in a separate account within your PRAP from contributions to your regular pretax 401(k) and Roth 401(k). Earnings on post-tax contributions are not taxable until withdrawn. Post-tax balances may be withdrawn at any time without a qualifying financial hardship, at which time the applicable earnings are subject to federal taxes.

Rollover
You are also permitted to roll over contributions from other qualified retirement plans (i.e., from a previous employer) into your PRAP, with certain limitations.

ROTH CONVERSIONS
Balances in any account sources in the PRAP can be converted to a Roth source. This can be the entire account source or just a portion of it. To convert balances from non-Roth to Roth, call Schwab at 866-855-7727. Any amounts converted to Roth that are not post-tax contributions will be subject to tax in the year converted. You will receive a 1099-R for the taxable amount. Therefore, pilots should carefully consider converting their balances, since the conversion of pretax balances in non-Roth accounts to Roth accounts may trigger a substantial taxable liability.“

https://www.alpa.org/ual/-/media/UAL/Files/eLibraries/Communications/committees/retirement-and-insurance/retirement-insurance-ual-benefits-book.pdf

How is Roth different from regular post-tax? They are both post tax aren’t they? What’s the benefit of converting regular post-tax contributions to Roth post tax? I’m assuming no tax liability since they are already post tax earnings.

I know just enough to do what I do for my goals, but I believe the difference is Roth 401k vs Roth IRA. The PRAP post tax contributions are still in a tax advantaged 401k account, with gains tax deferred, therefore RMD at 70 1/2. Moving them out of the tax advantaged status into an IRA removes the RMD requirement.

https://www.investopedia.com/articles/personal-finance/063015/roth-401k-vs-roth-ira-one-better.asp