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

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

 

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?

 

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

 

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).

 

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 .

 

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).

 

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