PRAP
 

Hey guys, I spoke with a couple of pilots who mentioned that they try to maximize their 401(k) as early in the year as possible (ideally within the first six months), even though the company’s 17% would fully maximize it by the end of the year. Does anyone understand that strategy? What’s the benefit, or did I misunderstand? All this retirement plan stuff is new to me, so I’m just trying to learn from people with more experience. Thanks in advance!

the IRS has limits on how much money can be put in your 401k. There is a personal limit ($23500 for 2025). That’s the one most people know about but 2 more limits kick in 415c ($70000 in 2025) which is how much your contribution and the companies can total and then we have the 401a limit ($350000 for 2025) which when you hit that limit the company can no longer contribute to your 401k. Since we have 17% direct contribution and as a FO who chases money or a captain you will far exceeded these limits we have additional buckets to spill into. First is your Retirement health account and more recently and Active health account. Any contributions above $70000, or companisation above $350k gets dumped into that account. Now with the new contract we have money market base account (I think I got the term correct) which will eventually be used for contributions above approximately $403000 as another retirement vehicle. As a stop gap we get prap cash which means after $403000 you get a 17% additional compensation on your pay check.

Do if you want to maximize your regiment savings the you want to contribute your portion of 401k saving before you hit other limits. If you make $403000 then you would get 70000 into your 401k plus $22000 into your health care account (which can be used for health care premiums, doctor visits, kids braces, etc) and then after that you would get 17% extra pay above $403000.

if you let the company contribute and you plan on just taking your monthly paycheck divid by 12 months and determine how much to contribute so you hit $23500 by years end. When your contributions hit approximately $12000 you would hit the $70k limit and the would miss out on $10000 dollars of company contributions that would spill into other buckets. Some people hate the health care accounts. Some love them. I have multiple kids so at this time I like the account.

i hope this clears it up. And btw the way I just finished a red eye so I’m sure there are grammar and mouth errors but for the most part this should be correct.

There are a couple of things in your question that need to be picked apart.

First, there are a few IRS limits to be concerned with:

1. Employee Contribution Limit (under 50, over 50 catch up, age 60-63 super catch up for 2025 and beyond)
2. Employee + Employer Contribution limit
3. Eligible income limit

Depending on your income and seniority, the company's 17% alone won't maximize the amount which you are allowed to save in your company retirement account. It certainly helps to contribute at least something. How much might depend on whether you are looking for excess spill to your health care account or not. Many military pilots don't like this as they have TriCare for life and don't need a lot of extra in those accounts. So spreading it out or contributing just enough to maximize with no spill is a good option for those pilots.

Second, some like me prefer to max out my personal contributions by June 16th (12th paycheck of the year) and take advantage of spill once I reach the combined allowed employee and employer limit until I see my target Active HRA/RHA balance at least. After that I will probably adjust to spread it out more in the year or designate excess to the MBCB Plan once it goes live.

Every pilot's situation is unique and given that I tend to take more expensive vacations in the fall, having my 401k and SS contributions over with by June allows me more take home money to spend on other things.

The R&I Committee will usually issue an email on ways to minimize or maximize spill for the following year based on the updated IRS limits that were just published on November 1st.

Wow, well explained finally is making sense. Thanks and have a good rest after your red eye.

so in your case, the advantage of maximizing early is to spill on the HRA that I'm assume is tax free? Or what's the difference or disadvantage if you let the company maximize your 401k, and you save the 23k on your bank account and use it for medical bills if needed?
thanks for your time and wisdom.

Concur on all the above...
Another factor is the time value of your contributed money.
$200 monthly contributed in January-June get more months of growth VS $100 contributed in January-December.

I like the spillage to my Active Health account vs saving to my bank account where I have to pay taxes on it. As someone with kids, one with specaial needs, we use all of the money in the health account. The more I can get into there, the better off I am.

For those of us on Tricare it is much much less of a benefit, but at least some money in the HRA isn't a bad idea for the savings that you'll reap once you start medicare.

Great topic and very timely. I was just having the same discussions with friends and fellow pilots. 82spukram and EWRflyer, appreciate informative responses.

Who's says there's not useful information on APC...

Cheers!

Can you use your HRA to pay Tricare Reserve Select Premiums?