after tax 401k

[vimwick]

first real question to the board.* tia.* waited til i thought i had something unique

daughter just finished pharmd and began work as pharmacist (~$50/hr) at local grocery chain.* received her 401k benefits package yesterday and was shocked to find she can only contribute after tax (max contribution of 72.2% of 15k)

her matching as i read it is x% of her total contribution (eg, 1.5k of 15k in first 3 years)


years of servicematch percentage
less than 310%
at least 3 but less than 520%
at least 5 but less than 1025%
at least 10 but less than 1550%
at least 15 but less than 2075%
20 or more100%


anyone seen this before?* any investment suggestions for dd?

thanks again

[Ed_The_Gypsy]

Time to consider a Roth.

Why would one invest in a 401k without tax advantages? Salary too high for a Roth, maybe?

If all else fails, she can simply save after-tax. The annual tax reporting can get irritating after a while, BUT: KEEP ACCURATE RECORDS OF WHEN STOCKS ARE BOUGHT and when PURCHASES ARE MADE IN MUTUAL FUNDS!

The best part is that taxes are less on capital gains outside of a tax-protected account and you can cash them in whenever you want, not per the dictates of the IRS schedules of required distributions.

[Martha]

This seems weird to me. Is it a Roth401k? If so, you usually have the option to make Roth contributions and regular 401k contributions. Most often the employer contribution is pretax.

Or is it a 401k that is not a Roth 410k, but only allows after tax contributions? If so, I have never seen such a thing. Some plans allow after tax contributions over and above the pretax contributions. I have never seen a 401k that only allows after tax contributions. Even more unusual to have the employer match be after tax.

Are you sure this is the whole package? Maybe it is just part of her 401k plan.

FYI, all contributions to 401k plans have FICA applied to them.

[vimwick]

thx for the replies.* yes, this seems VERY strange to me too.* it is not a roth.* it is a 401k that apparently doesn't allow pre-tax contributions.* the match is likely pre-tax (not sure).* looks like it's the whole package

the match seems reasonable over time but not enough to make up for lost earnings on pre-tax dollars

was hoping for an auto-pilot, no-brainer, normal pre-tax 401k for her.* the only thing that saved dw and i when we were young and foolish was to max out pre-tax 401k with a generous match

i'm befuddled.* can't see any way she can keep pace, through other investment vehicles or approaches, with a normal pre-tax 401k

thanks for any and all good natured suggestions

[Martha]

I would have her ask human resources about it. Saying, "I am confused, I thought you don't pay taxes when you put the money in a 401k and you could wait until you take it out."

See what they say.

[vimwick]

thx guys. yes, i'll show her your replies and have her touch base with hr as you suggest. should be interesting. i'll let you know what hr says...

[Martha]

I had another thought. Is she in a union? I should have thought of this when you said grocery store. Multi-employer 401k plans are rare. I understand that there are plans which allow only employee after tax contributions with a pre tax employer contribution. I am not sure that these are actually 401k plans and are usually called annuity plans. (I just looked it up and it looks like these fall under 401a, not 401k). Some of these plans are controlled by trustees, others by union members.

It is harder to set up a pretax plan when you have a multiemployer union contract. However, there generally is a pension plan as well. If there is only one employer with the union contract, a 401k should be pretty simple for the employer.

Browsing the net shows me that some pharmacists are union (eg, Rite Aid, Safeway. . .) The Safeway site says that they have a 401k plan with pretax contributions plus a pension.

Edited to add info.

[yakers]

Sure sounds like a Roth 401k.

[Martha]

Quote:

Originally Posted by yakers Sure sounds like a Roth 401k.

I don't think so. My guess it is because she is in a union and they put out this plan to supplement a pension. Or I am all wet.

[vimwick]

definitely not roth.* she work's for a chain called basha's is southern az

from their site

Bashas' United Drugs offers these advantages:

Relocation/Transferal Bonus Allowance
Competitive, Market Based Salary
Nine Paid Holidays per Year
Generous Paid Vacation Allowances

401K Plan with Company Match and a Paid Pension Plan

Paid Family Health, Dental, and Vision Insurance
Paid Life, Disability, and Professional Liability Insurance
Continuing Education Allowances
Paid Pharmacy License Renewal
Paid Pharmacy Association Dues
Generous Grocery Discounts

scanning the web for info on 401a...* (w|c)ould they advertise 401a as 401k?* yet there is an offered pension plan.* haven't seen the particulars on the pension

thanks again for the help.* we'd be happy if it was a roth 401k

[vimwick]

what i'm coming to learn (thx martha) is that this probably is a 401a (after tax) savings plan advertised for hiring as a 401k (pre tax) savings plan.* guess they figure once the hook (signing bonus) is set, it's too late to leave.* and their right.* she's loves the people and work environment

i'm just angered that they wouldn't give her any particulars on the savings plan prior to signing on.* as a rough guess, she'll need to save an additional 5k/yr in a non-deductible ira (will she have the discipline to do so at such a young age?) to keep pace

anyone know if it is either legal or ethical to advertise a 401a as a 401k?* am i wrong in assuming that 401k infers pre tax?

thanks*

[Martha]

Quote:

Originally Posted by vimwick what i'm coming to learn (thx martha) is that this probably is a 401a (after tax) savings plan advertised for hiring as a 401k (pre tax) savings plan.* guess they figure once the hook (signing bonus) is set, it's too late to leave.* and their right.* she's loves the people and work environment i'm just angered that they wouldn't give her any particulars on the savings plan prior to signing on.* as a rough guess, she'll need to save an additional 5k/yr in a non-deductible ira (will she have the discipline to do so at such a young age?) to keep pace anyone know if it is either legal or ethical to advertise a 401a as a 401k?* am i wrong in assuming that 401k infers pre tax? thanks*

I think that a 401k infers pre tax (after all, why else establish a 401k), but what do you do about it if it isn't a 401k?

I think the next step is to see what her HR department says in response to the friendly inquiry about the 401k.

[heyyou]

Former coworker had worked at Basha's grocery for 20 years, age 17 to age 37. At 65, his pension will pay $600 a month, 25 years from now! Your daughter had better save a lot.