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Old 05-03-2014, 03:44 PM   #21
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I'd guess half our assets came from local government 457 plans starting in early 80's. I remember reading the fine print and was a little concerned that you were at risk of the city going bankrupt, but it didn't seem likely for that city. In those early days IIRC it was insurance companies, not Vanguards or FIDOs that were doing these, and the performance sucked (for my available funds). Still, the tax dodge was worth it. As soon as I could I rolled them into IRA; IIRC they didn't allow us to do that in the plan I was in in 80's until about 5 years after I left. As soon as I could I got it over into FIDO IRA.

What was great was last job had the 457 AND a 401k, so over 55 you could sack away over 40k a year. Of course now I have more than half of a considerable portfolio waiting to be whacked by the tax man when the minimums kick in. We do't really have much incentive to Roth it because we'er already in upper brackets with pension and dividends. Oh well, having to pay taxes isn't necessarily a bad think if it's because you have income!
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Old 05-03-2014, 10:12 PM   #22
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Our company matched 3% of our base/bonus so if I defer 50% my assumption is that the comp would go down and correspondingly, the match. The % wouldn't change, but the $'s would. One more factor to consider.

I was assuming that the OP was already maxed out on their 401(k).... if not, then you do not need to put money into an unqualified plan.... just put it in the qualified one!!!
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Old 05-04-2014, 07:13 AM   #23
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I was assuming that the OP was already maxed out on their 401(k).... if not, then you do not need to put money into an unqualified plan.... just put it in the qualified one!!!
Yup, I am maxing out the 401k, but the match is 3% of overall pay, which would be reduced by deferring. I'll still have the max on my end, but a little less from their side. They wouldn't match on the post-employment payout.
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Old 05-04-2014, 10:22 AM   #24
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Yup, I am maxing out the 401k, but the match is 3% of overall pay, which would be reduced by deferring. I'll still have the max on my end, but a little less from their side. They wouldn't match on the post-employment payout.

Ahhhhh.... this make no sense to me....


If you are maxing out your 401(k), then you are also maxing out your match... IOW, they cannot put more 'match' in than what you can put in...


Now, if you are saying that they put in 3% of total compensation, including bonus..... well, that is not a match, but a contribution.... (and I would not think they would be putting that in your 401(k)).....


Also, check to see if this contribution if affected by deferring bonus... I never made enough to qualify when I worked at mega, but I do think that the cash balance account was not affected by the deferral...
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Old 05-04-2014, 03:47 PM   #25
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Ahhhhh.... this make no sense to me....


If you are maxing out your 401(k), then you are also maxing out your match... IOW, they cannot put more 'match' in than what you can put in...


Now, if you are saying that they put in 3% of total compensation, including bonus..... well, that is not a match, but a contribution.... (and I would not think they would be putting that in your 401(k)).....


Also, check to see if this contribution if affected by deferring bonus... I never made enough to qualify when I worked at mega, but I do think that the cash balance account was not affected by the deferral...
I didn't list the terms of the match clearly:

The 401k match is 50% of the employee contribution up to the first 6% of that contribution. That is why I referred to it as a 3% match (yes, poor wording...). You are right, it is not a 3% contribution, it is a 50% match of the 1st 6%.

Example:
Salary totals $50K. They contribute (what I called a match) up to 3% (50% of 6%). With a biweekly gross of $1923, as long as I contribute >=$115 (6% of $50K/26 pay periods), they will add ~$58 ($1500 annually). A larger contribution doesn't get me more.

If I defer 1/2 ($25K deferred) then my biweekly gross would go to $962. Again, they match 50% of the first 6% I put in. Their match is now ~$29. I could still contribute more of each check to the max. The biweekly match would still be ~$29 ($750 annually). Same story on contributing more.

Maxing the contribution does max the match, but the difference in the reported salary changes the total match.

Feel free to correct my math if I am missing something.
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Old 05-04-2014, 06:29 PM   #26
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I didn't list the terms of the match clearly:

The 401k match is 50% of the employee contribution up to the first 6% of that contribution. That is why I referred to it as a 3% match (yes, poor wording...). You are right, it is not a 3% contribution, it is a 50% match of the 1st 6%.

Example:
Salary totals $50K. They contribute (what I called a match) up to 3% (50% of 6%). With a biweekly gross of $1923, as long as I contribute >=$115 (6% of $50K/26 pay periods), they will add ~$58 ($1500 annually). A larger contribution doesn't get me more.

If I defer 1/2 ($25K deferred) then my biweekly gross would go to $962. Again, they match 50% of the first 6% I put in. Their match is now ~$29. I could still contribute more of each check to the max. The biweekly match would still be ~$29 ($750 annually). Same story on contributing more.

Maxing the contribution does max the match, but the difference in the reported salary changes the total match.

Feel free to correct my math if I am missing something.

I would say call HR and ask...

On the plans that I used to be in, if you had a 50% match up to 6%.... it was what you put in that paycheck... it was not what your yearly earnings were, but the earnings of that one paycheck...

So, if you get a $25K bonus on your last paycheck, you have a max match of $750 (3%)....


If you company looks at total compensation to match.... ask if that is W-2 wages or actually earnings including deferrals.... as I said, I know my mega treated the deferral as 'pay' for benefits.... you have to remember... these deferrals are set up for the top people and they are not going to put something in place that will hurt them if at all possible...
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Old 05-04-2014, 10:58 PM   #27
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Thanks for bringing up the subject of deferred compensation plans. My wife's employer has always offered one, but I've never investigated the details. This thread made me go read her plan documentation so I can understand how it works. Her plans looks good, around 18 basis points for yearly administration and reasonable investment choices.

If I understand the plan correctly, deferred compensation plans (457) can be a great way to bridge the gap until you can access IRA/Retirement funds. I was surprised that you can access the funds immediately after you sever employment. You can minimize your current tax obligation and then draw on these funds for a number of years before you hit 59.5. Is anybody aware of any gotchas?

I always have the feeling that we are over saving in our tax deferred accounts. I should sit down and run the numbers. It might make more sense to invest in the 457 account instead of her 403b.
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Old 05-04-2014, 11:20 PM   #28
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Thanks for bringing up the subject of deferred compensation plans. My wife's employer has always offered one, but I've never investigated the details. This thread made me go read her plan documentation so I can understand how it works. Her plans looks good, around 18 basis points for yearly administration and reasonable investment choices.

If I understand the plan correctly, deferred compensation plans (457) can be a great way to bridge the gap until you can access IRA/Retirement funds. I was surprised that you can access the funds immediately after you sever employment. You can minimize your current tax obligation and then draw on these funds for a number of years before you hit 59.5. Is anybody aware of any gotchas?

I always have the feeling that we are over saving in our tax deferred accounts. I should sit down and run the numbers. It might make more sense to invest in the 457 account instead of her 403b.

I am sure there are some... and this could be for some other type of plan, so do your research on it...

But I was in a meeting where someone was talking about these for maybe 15 minutes... one thing I remember him saying is that you have to make elections that tie up your money for 5 years... he then said there was something you can do to 'fix' this by doing a ladder... I think the basic thing he was saying is that you do not have to have your money at the company forever... there is a possible out for part of your money if the decline of the company is slow...
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Old 05-04-2014, 11:44 PM   #29
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I am sure there are some... and this could be for some other type of plan, so do your research on it...

But I was in a meeting where someone was talking about these for maybe 15 minutes... one thing I remember him saying is that you have to make elections that tie up your money for 5 years... he then said there was something you can do to 'fix' this by doing a ladder... I think the basic thing he was saying is that you do not have to have your money at the company forever... there is a possible out for part of your money if the decline of the company is slow...
I'm going to read the docs over again tomorrow when I have more time, but based on what I've read, there's no lockup, you can change investments anytime while you have the account and after you've stopped employment. It also looks like there's a flexible withdrawal distribution that can be made, which would sure beat having to setup a 72t. The only downside seems to be the 13bp account management fee, which seems very reasonable to me (I had this wrong in my original post). But the funds in the account are mostly index funds, state bond fund, etc, that have reasonable ERs.

Between this, a 403b, HSA, and then my 401k, we might be able to save around 55k tax free per year, with the added bonus that this account can be accessed before 59.5. In retrospect, I should have investigated this sooner, but better late than never.
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Old 05-05-2014, 05:41 AM   #30
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I would say call HR and ask...

If you company looks at total compensation to match.... ask if that is W-2 wages or actually earnings including deferrals.... as I said, I know my mega treated the deferral as 'pay' for benefits.... you have to remember... these deferrals are set up for the top people and they are not going to put something in place that will hurt them if at all possible...
I'll check on that. Thanks.
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Old 05-05-2014, 06:09 AM   #31
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I was in a dc program and we could use Vanguard and pick our poison. I would not be comfortable investing where I work, not diversified enough for me. Also 50% of your income is not tax deferred, only a portion of it is, depending on your age. Older people can play catch up.
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Old 05-05-2014, 08:25 AM   #32
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....Feel free to correct my math if I am missing something.
Our match was 50% of 6% as well. I don't think you have the second example right. The match would be $1,500 in both cases. The gross would be $50k in both cases. The taxable comp would be $47k and $25k, respectively which is the gross of $50k less your deferrals of $3k and $25k, respectively.

The match is always 50% of the first 6% you contribute so if you contribute 6% the match would be 3% and if you contribute 50% the match would be 3%.

And while I used annual numbers above to align with your example, I agree with TP that is it done for each paycheck, which is why it is optimal to spread your deferrals over the entire year rather than skew them and end up with some pay periods with less than 6% deferral which loses out on some match.

Your plan may be different but most 50%/6% matches work as I describe above.
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Old 05-05-2014, 03:59 PM   #33
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Thanks pb4uski. You could be right on the 401k match. I assumed it would reduce the gross (and therefore the match), but if it is applied as a pre-tax deduction from the gross then it wouldn't. I'll check on that.
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Old 06-02-2014, 07:53 AM   #34
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Does anyone know if distributions from a non-qualified deferred compensation plan count as "qualifying" income for the purposes of being able to make an IRA contribution?

I'm thinking of deferring some income so that it comes to me after I stop working and am in a lower tax bracket. It would be great if those future distributions would also give me the "qualifying" income I need to contribute to an IRA since I'm unlikely to be getting W-2 income anymore.
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Old 06-02-2014, 10:28 AM   #35
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I don't think so.

Qualifying Income for IRA Contributions « Fairmark.com Fairmark.com


Quote:
Items not included

The following items may not be included in your compensation income:.....
  • Compensation that was deferred from a previous year
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Old 06-02-2014, 12:05 PM   #36
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Thanks for finding that.
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