Originally Posted by APC225

I'm no expert either so I write this to clarify for myself and prompt corrections to my understanding of the issue. I think....

The $270k restriction is a separate calculation from the 403b limit. If you max out your 401k at $18k then $38k is left to reach the $54k 403b limit. At $237,500 the 16% will get you that $38k. So the 403b can be maxed out well before $270k.

The $270k is like a rich person restriction. Congress figured if you make this much you don’t need a tax break on company contributions. For example, if you put zero in your 401k, at $270k the 16% would be $43,200, well below the $54k limit, but the company contributions to PRAP have to stop anyway. You can continue to put 401k money in, even after $270, because this isn’t company money.

In either case, once either limit is reached, the 16% goes to the RHA. It’s allowed because this pretax contribution is not to an individual but to a fund from which the individual cannot take a cash distribution and is not inheritable as part of an individual’s estate.

Originally Posted by Yak02

The industry is being forced into hiring older pilots that have less time to build a survivable retirement. ALPA needs to wake up to this and start doing the right thing for all there members ( they have never done that in the 59 years I have been eating from their contracts.) Look at reality, we need a mechanism to get as much retirement funs into accounts as early as possible. The way it is now it is backwards. I have hit the IRS limit in September, the rest goes in to my RHA VEBA account. I have over $65K in that account and have 5 more years to go until retirement. You can only use the RHA money for Health Care. Unless the government changes the way Health Insurance is used I will never run out of money in that account. Use the money or loose it.

Originally Posted by APC225

Anyone wanting to max out RHA, keep an eye out for R/I email to [email protected] regarding putting vacation directly into RHA, bypassing the 401/415 issues. You can put in up to 21 days, election must be by midnight 31 Dec. Reply "yes" to their email and number of days elected.

Originally Posted by Dave Fitzgerald

This has been addressed before, but I'll cover it since you mentioned it.

I would recommend against deferring vacation into the RHA. Do the spill over another way. If you use vacation, that valuation DOES NOT include B and C contributions. Thus using vacation to fund the RHA is a 16% pay hit. Only do this if you really have no other way to fund the RHA.

As Mako suggested take profit sharing and put it into the 401k, contribute to the 401k, max it out, that will get you to the 415 limit early in the year, then any B & C contributions will then spill into the RHA.

So, you can put money into the RHA via un-elected vacation, but it'll cost you money to do it.

Originally Posted by APC225

It will not, if I understand it correctly. One also has to consider their tax bracket. Vacation is ordinary income and as such is taxed in a bracket for most of us well more than 16%. While the loss of the 16% match is significant, there is in fact a net gain when you consider that RHA directed vacation pay bypasses taxation at a 25% or higher rate.

For instance $10k worth of vacation would put $1600 into PRAP but cost $2500 or more in taxes for a net loss compared to $10k into RHA that doesn’t get the 16% match but bypasses 25+% taxation. Additionally, RHA funds are tax free coming out while PRAP funds are not. The $1600 gets taxed again later upon distribution from the pretax account. RHA does not.

There are certainly compelling reasons not to sell vacation, but a net loss of money is not one of them if I understand it correctly.