Airline Pilot Central Forums - Profit Sharing Predictions

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Quote:

Originally Posted by Probe (Post 2274897)

I made the mistake of putting a lot of mine in the PRAP last year. I found out after that it doesn't go in completely "before tax". I don't remember the details, but it is a different category of income, and is treated different under tax law.

So if you put it in your PRAP, you will still get taxed, and will fill up your limit with "POST" tax money instead of pre-tax money. Seems to me the wrong way to go.

I wish the union would have advised us of this. I cost me a few thou of tax.

Quote:

Originally Posted by rp2pilot (Post 2274956)

Thanks for the heads up .. I'm hoping the MEC sends out info on this in the near future as I'm trying to figure out the tax ramifications. I "believe" that our personal contributions (separate from the company's) are subject to the 401k limits of 18,000 / 24,000(over50), so a portion of it should go in pre-tax.

The MEC did send something out, but if you don't read your emails you'd think they hadn't... :eek::eek::eek:

From the UAL MEC update on 12/22/2016:

Quote:

Profit Sharing

The company’s year-end earnings announcement will take place on January 12, 2017. Eligible employee profit-sharing percentage announcement will be made the following day.

Profit sharing payments will be paid on a separate check February 27, 2017.

For pilots that wish to defer a portion of their profit sharing to their 401(k) plan, they will be able to make 401k elections by going to Flying Together > Employee Services > My Info > Continue to My Info and Manager’s Toolbox > Profit Sharing 401k Election. The 401k election for profit sharing can only be made on Flying Together. Your Schwab 401k election that applies to your February 16 and March 1 paychecks is not attributable to your profit sharing payment.

The deferral election window is currently projected to be open from January 23, 2017 through February 10, 2017, and will be available to anyone on a leave of absence as well as active employees. Profit sharing payments are not eligible for company B/C Plan contributions.

If a participant elects 100% of their profit sharing payment to go into the 401k, they will not see all of their profit sharing payment go into the PRAP. The reason being amounts contributed to the PRAP under 401k elections, though not subject to income tax, are subject to FICA tax. The company must hold back enough of the profit-sharing payment to cover the FICA tax on the 401(k) contribution, and the amount held back to cover FICA withholding is itself subject to Federal, State, and local income taxes, so the hold back is increased to cover those taxes as well.

Due to IRS regulations regarding special payments, such as profit sharing, federal income tax withholding will be 25% for any profit sharing amount distributed to you in your paycheck, but, as noted above, to the extent your profit sharing is deposited in the PRAP pursuant to the special 401(k) election, it is not subject to federal income tax withholding.

Quote:

Originally Posted by Probe (Post 2274897)

I wish the union would have advised us of this. I cost me a few thou of tax.

See Winstons post above, but there were no less than half a dozen emails explaining the tax ramifications of last years PS check and contribution it to the PRAP.

Quote:

Originally Posted by Grumble (Post 2275109)

See Winstons post above, but there were no less than half a dozen emails explaining the tax ramifications of last years PS check and contribution it to the PRAP.

Yes, I see that, and I also went back and looked at the MEC update from 12/16/16 and read the same. My point being, regardless of FICA tax, I believe only the portion of profit sharing that's below 18,000 / 24,000 has the ability to be shielded from FEDERAL INCOME tax. I already add $1000 / month to my 401k, so I "believe" that, in my circumstance, only $12,000 of the profit sharing can be treated exempt from FEDERAL income tax. Is this how you understand the tax ramifications?

Quote:

Originally Posted by rp2pilot (Post 2275180)

If you have your 401k contribution set to be $1000/ month pre tax and also $1000/month post tax then you will continue to donate post tax dollars into your PRAP after the 18/24 is reached (assuming more than 12k of profit sharing dollars contributed) If however you don't have the monthly contributions set up to continue after reaching the pretax limits, then you will have no issues with any money going in post tax.

There is a contribution selection section on the PRAP website that deals with your monthly contribution.

The tax issue that is discussed in the PRAP profit sharing selection is just over the fact that you can't really donate 100% of your profit sharing to your PRAP, because Uncle Sam takes FICA out of every pay check first before it does anything ( up to the FICA limits ) So, if you are getting $10,000 in profit sharing and want to contribute it all to your PRAP, you won't see the full $10,000 going into your account because FICA will come out first. That is not really an issue because though you will only get $9000+ going into your PRAP it won't have cost you any taxes you would otherwise somehow avoid and it will only count at $9000+ towards your limit of 18k/24k of pretax contributions.

Actually this same issue would happen to you if you elected on a monthly basis to contribute 100% of your regular paycheck. Since virtually none of us can afford to do that, it is never brought up.

So, if you are concerned about contributing post tax dollars, just check your PRAP elections and make sure that you have those set at 0.

[QUOTE=rp2pilot;2275180]Yes, I see that, and I also went back and looked at the MEC update from 12/16/16 and read the same. My point being, regardless of FICA tax, I believe only the portion of profit sharing that's below 18,000 / 24,000 has the ability to be shielded from FEDERAL INCOME tax. I already add $1000 / month to my 401k, so I "believe" that, in my circumstance, only $12,000 of the profit sharing can be treated exempt from FEDERAL income tax. Is this how you understand the tax ramifications?[/QUOTE

You will pay FICA and then held 25% for federal taxes even if you defer everything to your 401k.....

Best is either Roth the whole amount of PS to 401 or take the cash and contribute 100 of your income earned check for the month to 401 and take the tax defer IRS credit

Quote:

Originally Posted by GoCats67 (Post 2275220)

Actually this same issue would happen to you if you elected on a monthly basis to contribute 100% of your regular paycheck. Since virtually none of us can afford to do that, it is never brought up.

I did that last year and I'm doing it again this year. I know I'm an outlier but I'm sure there are others who do the same. I'm trying to get a large annual RHA spillover.

I set my Fed exemptions to 10 and don't have state tax.

For my 3 Jan paycheck, I had:
Earnings: 7300.65
FICA/CA EE: 633.85
Pretax deductions: 41.80
After tax deductions: 208.88
Fed taxes: 0
Pretax 401K contribution: 6416.12

I do 100% pretax until I hit $24K, then do 100% post tax until I get close to $60K (2017) in my 401k, including company contributions.

I also converted all of my post tax contributions to Roth 401k so that the money grows tax free. It's a bit of a hassle to do with Schwab but I don't want to pay taxes in the future on gains that could be tax free with a simple conversion. Since the money I converted was post-tax, there is no additional taxes for conversion (other than taxes on gains prior to conversion).

Quote:

Originally Posted by Andy (Post 2275253)

Thank you .. exactly the info I was looking for! As far as RHA spill over, my plan is different; if I go through all of my retirement savings, I'll move back to California and ask for a generous handout :).

Quote:

Originally Posted by rp2pilot (Post 2275261)

:D The lowest tax bracket my wife and I will be in during retirement is 28% so I've opted to sock away as much as possible into RHA since it's all tax free money.

RHA can be used to pay Medicare Part B, along with a lot of other stuff. Based on current tables, Part B will cost wife and I $4500/yr ($187.50/mo x 2).

Quote:

Originally Posted by Andy (Post 2275253)

How do you convert post tax to Roth with Schwab?

Quote:

Originally Posted by jumppilot (Post 2275340)

How do you convert post tax to Roth with Schwab?

Google: backdoor Roth.

It's a moderately complex topic. Personally, I just learned about this technique. From what I can tell it really benefits 2 types of folks. First those who want to save more for retirement than their plan allows or second those with an enormous amount of cash on the sides that they'd like to shelter from tax.

The way over simplified version is this . . . first, you need a single standard IRA at Schwab with no other old IRAs that have a value much larger than the one at Schwab. Second, you fund the IRA with after tax money and tell Schwab you want to change it to a Roth, but there is some question about how long you need to wait between funding and switching.

Like I said it's complicated; just like everything else with our crazy tax code :rolleyes: