Over at Bogleheads we read: 401k Help
by Mednole » Wed Jan
15, 2014 7:09 pm
I have never had a 401k before, and my employer just started offering one as of this week.
I would like to max out my contribution this year $17,500 (31 years old).
I have the option of either a Roth or Traditional 401k.
My employer matches dollar for dollar the first 3%. After that, they match 1% for the next 2% the employee contributes. (Max 4% employer match with a 5% employee contribution).
My income exceeds the $260,000 IRS maximum when determining the match. (I'm not sure if the % I select to put in the 401k is based on this number or on my salary of $450,000 per year). So, what percent of my income should I select if I'm trying to max out my contribution into the Roth 401k, while taking advantage of the employer match throughout the year? I am told by HR that if I max out my 401k early in the year, I lose out on the employer match for the rest of the year. Based on my calculations, I should contribute 7%, but I don't know if I need to consider taxes when contributing to a Roth 401k.
I'd greatly appreciate any insight. Thanks!
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Re: 401k Help
by mah001 » Wed Jan 15, 2014 7:33 pm
Assuming you're in higher tax bracket now than when you eventually take distribution, presumably in 'retirement,' why not take the full tax deferral----$17,500? Divide this dollar amount limit by the remaining number of paychecks.
Multiple definitions of compensation can exist in a section 401 plan. To further complicate things, the various and sundry limits aren't always measured in terms of the same 12 month period. Obtain access to your full plan document (vs. summary plan description). We do know 401(a)(17) says the plan can't use more than $260,000, so that's likely what the plan is using for most if not all that applies to you.
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Re: 401k Help
by retiredjg » Wed Jan 15, 2014 7:37 pm
With your salary, you should be using traditional 401k and making back door contributions to Roth IRA. When I say "using" I mean maxing them out. Forget the match. You need to fill up that 401k for the reduction in taxable income.
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Re: 401k Help
by mah001 » Wed Jan 15, 2014 7:48 pm
I agree with retiredjg except doctors may be swayed by greater creditor protection of 401 plan vs. 408 ira, extent of difference depending on state law.
Am also assuming that unlike for a recent thread, the $52,000 limit will not be at issue. That is, generous employer contributions will not be lost due to contributing too much on the employee side.
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Re: 401k Help
by Mednole » Wed Jan 15, 2014 9:46 pm
retiredjg wrote:With your salary, you should be using traditional 401k and making back door contributions to Roth IRA. When I say "using" I mean maxing them out. Forget the match. You need to fill up that 401k for the reduction in taxable income.
So the consensus is that I should use a traditional 401k instead of the Roth 401k for the tax deduction?
Should I not be doing a backdoor conversion to a Roth IRA as well (and just contribute to a traditional IRA)?
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Re: 401k Help
by JW Nearly Retired » Wed Jan 15, 2014 9:54 pm
retiredjg wrote:With your salary, you should be using traditional 401k and making back door contributions to Roth IRA. When I say "using" I mean maxing them out.
+1
Easy call to do this. Max out the trad 401k and do a backdoor individual Roth IRA.
JW
Retired Summer 2013
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Re: 401k Help
by retiredjg » Wed Jan 15, 2014 10:08 pm
Mednole wrote:
retiredjg wrote:With your salary, you should be using traditional 401k and making back door contributions to Roth IRA. When I say "using" I mean maxing them out. Forget the match. You need to fill up that 401k for the reduction in taxable income.
So the consensus is that I should use a traditional 401k instead of the Roth 401k for the tax deduction?
Should I not be doing a backdoor conversion to a Roth IRA as well (and just contribute to a traditional IRA)?
In a hurry? Maybe you should read what I said again.... 
Or perhaps you don't know what "back door contributions to Roth IRA" is?
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Re: 401k Help
by Mednole » Thu Jan 16, 2014 5:58 am
retiredjg wrote:
Mednole wrote:
retiredjg wrote:With your salary, you should be using traditional 401k and making back door contributions to Roth IRA. When I say "using" I mean maxing them out. Forget the match. You need to fill up that 401k for the reduction in taxable income.
So the consensus is that I should use a traditional 401k instead of the Roth 401k for the tax deduction?
Should I not be doing a backdoor conversion to a Roth IRA as well (and just contribute to a traditional IRA)?
In a hurry? Maybe you should read what I said again.... 
Or perhaps you don't know what "back door contributions to Roth IRA" is?
I guess I just am not understanding why do traditional for the 401k and Roth for the IRA. Why not all traditional or all Roth?
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Re: 401k Help
by mnvalue » Thu Jan 16, 2014 5:59 am
Mednole wrote:I guess I just am not understanding why do traditional for the 401k and Roth for the IRA. Why not all traditional or all Roth?
You're not eligible to contribute (pre-tax) to a traditional IRA.
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