Posted: 11/18/2013 3:16:51 PM EDT
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My plan says "Group Retirement Savings Plan matches $0.50 to your account for every $1.00 you contribute, up to the first 6.00% of your annual eligible pay."
For me to maximize this, do I do 12% so they'll give me 6%? Or are they saying they'll match me up to my 6% and everything I decide over that is not matched? |
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Appreciate the clarification. That's what I figured but it was worth asking.
How does this work with my tax deductions? It's a part time job right now (internship) and I can contribute up to 50% with like $18K I think max for taxes, which is less than I'll make. I'm getting fucked in the ass with taxes between state and feds, like $200 a week between the two. Could I make half this income tax free? |
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I'm assuming you are new at the firm since 50% is a relatively high contribution limit. Typically, once you've worked at a firm for one tax period they determine if you are highly compensated (based on everyone at the firms pay) or not. You will them be subject to whatever limit the feds and the company determine...something more like 10% for highly compensated employees and 2 or 3 times that for "normal" employees.
The whole thing is a bit dumb since, regardless of the % of your pay you contribute, everyone is subject to the $17,500 limit; you can contribute more on an aftertax basis if you just want to save more. There is usually a split between before and after tax contributions subject to the maximum. In other words, your plan will say something like 10% maximum before tax with a total of 20% (with the other 10% being after tax contributions). You want to stretch your matched contributions out over your entire pay period (typically a year) so that you maximize your matching contributions by contributing at least 6% for the entire year. If you contribute at a higher rate and max out in 10 months versus 12 (for example) you would lose 2 months of company match. |
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My understanding is that you can defer as much of your earned income as you'ld like into the 401k. If you made 18k and put 17500 in the 401k you're taxable earned income this year would be $500. The rest of the money would be taxed at retirement after it has grown tax free for decades. If you have a way to live without spending the money from your internship such as scholarships, it might be a great idea to put as much as humanly possible in there.
This is actually what I do with my earned income every year. I live off my investments as much as i can and the earned income goes into the investments, especially every tax free (roth) or tax deferred (401k) option i'm allowed.. |
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Quoted:
My understanding is that you can defer as much of your earned income as you'ld like into the 401k. If you made 18k and put 17500 in the 401k you're taxable earned income this year would be $500. The rest of the money would be taxed at retirement after it has grown tax free for decades. If you have a way to live without spending the money from your internship such as scholarships, it might be a great idea to put as much as humanly possible in there. This is actually what I do with my earned income every year. I live off my investments as much as i can and the earned income goes into the investments, especially every tax free (roth) or tax deferred (401k) option i'm allowed.. It depends on how your individual plan is written. In addition to the IRS limit of $17.5k, your employer can (and everyone I have seen does) impose a salary-based limit. The plan available to federal employees (and now the military) is the only one I've seen where you can contribute more than 20 to 30% of your pay. Additionally, the IRS requires companies to keep their 401(k)s "fair" for low and high wage earners. Without going into the formulas, highly compensated employees (HCEs) may be further restricted in the % of salary they can contribute or by an overall limit lower than $17.5k. It's based on the salaries and contributions of everyone at the company and is part of an individual company's plan. |
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Quoted:
It depends on how your individual plan is written. In addition to the IRS limit of $17.5k, your employer can (and everyone I have seen does) impose a salary-based limit. The plan available to federal employees (and now the military) is the only one I've seen where you can contribute more than 20 to 30% of your pay. Additionally, the IRS requires companies to keep their 401(k)s "fair" for low and high wage earners. Without going into the formulas, highly compensated employees (HCEs) may be further restricted in the % of salary they can contribute or by an overall limit lower than $17.5k. It's based on the salaries and contributions of everyone at the company and is part of an individual company's plan. Quoted:
Quoted:
My understanding is that you can defer as much of your earned income as you'ld like into the 401k. If you made 18k and put 17500 in the 401k you're taxable earned income this year would be $500. The rest of the money would be taxed at retirement after it has grown tax free for decades. If you have a way to live without spending the money from your internship such as scholarships, it might be a great idea to put as much as humanly possible in there. This is actually what I do with my earned income every year. I live off my investments as much as i can and the earned income goes into the investments, especially every tax free (roth) or tax deferred (401k) option i'm allowed.. It depends on how your individual plan is written. In addition to the IRS limit of $17.5k, your employer can (and everyone I have seen does) impose a salary-based limit. The plan available to federal employees (and now the military) is the only one I've seen where you can contribute more than 20 to 30% of your pay. Additionally, the IRS requires companies to keep their 401(k)s "fair" for low and high wage earners. Without going into the formulas, highly compensated employees (HCEs) may be further restricted in the % of salary they can contribute or by an overall limit lower than $17.5k. It's based on the salaries and contributions of everyone at the company and is part of an individual company's plan. I was just talking about the government part of the rules, but yes companies often have more restrictions. Sometimes a stupid number of them. My company is not set up that way, so I can put in as much as I want. The last company I was at also let me contribute 85% into the 401k in a single pay period so It does happen. |