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Old 02-05-2008, 05:25 AM   #21
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Originally Posted by Notmuchlonger View Post
I never heard of a limit. DW pulls in more than 100 a year and she can do the maximum.
has to do with comparisons to everyone in the company. Not a specific dollar clip level.
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Old 02-05-2008, 06:33 AM   #22
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Originally Posted by Independent View Post
Virtually all working people the the US consider themselves "middle class". But some of us really do have higher incomes than others.
According the the Census Bureau, less than 10% of people who worked full time for "50 weeks or more" in 2006 made more than $100k.

So it's time for a pat on the back, he really is one of those "high earners".

PINC-05--Part 1
Wow. 10% of full time workers made more than $100k. I've slipped in my status, since I "only" hit $95k this year.
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Old 02-05-2008, 07:33 AM   #23
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Unless you have what is called a "safe harbor" 401k plan, the 401k contributions have to undergo discrimination testing each year. What I understand about discrimination testing is that the percentage contributions of highly compensated employees are compared to the percentage contributed by other employees. Highly compensated employees are those who are paid over $100,000(in 2007) plus people who own a certain ownership interest in the company. Or, I believe the company can define "highly compensated" as the top 20% earners.

As an example, if the highly compensated employees are contributing 15% of their income, up to the maximum contribution, but the other employees are contributing only 2%, the company might flunk discrimation testing and the highly compensated have to reduce their percentage contribution.

We had this problem where I used to work and we fixed it by moving to a safe harbor plan. This required us to make fairly significant employer contributions to all employees. However, this allowed us to contribute the maximum to our 401(k)and profit sharing plan for the highly compensated so everyone ended up better off.
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Old 02-05-2008, 08:05 AM   #24
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Unless you have what is called a "safe harbor" 401k plan, the 401k contributions have to undergo discrimination testing each year. What I understand about discrimination testing is that the percentage contributions of highly compensated employees are compared to the percentage contributed by other employees. Highly compensated employees are those who are paid over $100,000(in 2007) plus people who own a certain ownership interest in the company. Or, I believe the company can define "highly compensated" as the top 20% earners.

As an example, if the highly compensated employees are contributing 15% of their income, up to the maximum contribution, but the other employees are contributing only 2%, the company might flunk discrimation testing and the highly compensated have to reduce their percentage contribution.

We had this problem where I used to work and we fixed it by moving to a safe harbor plan. This required us to make fairly significant employer contributions to all employees. However, this allowed us to contribute the maximum to our 401(k)and profit sharing plan for the highly compensated so everyone ended up better off.
Wish DH's company would do the same, but it is such a huge megacorp I doubt it would be in their best interest to have to increase their contributions to all employees.

This discrimination testing seems unfair especially since we've always contributed the max, even when we made a lot less - since we LBYM'd all along. Doesn't seem right to me that it is assumed people only contribute 2% b/c that is all they could "afford" - since we all know people spend differently. So we in a sense are being penalized for making lots of money, and living below our means while others making less are potentially driving expensive cars, watching big screen t.v.'s, etc., in debt, etc. Oh well, I really am whining now! Waaaahhhh! As others have basically said, I need to get a grip and be thankful for our financial position. But it's just so much easier to complain, LOL
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Old 02-05-2008, 08:05 AM   #25
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Originally Posted by Independent View Post
Virtually all working people the the US consider themselves "middle class". But some of us really do have higher incomes than others.
According the the Census Bureau, less than 10% of people who worked full time for "50 weeks or more" in 2006 made more than $100k.

So it's time for a pat on the back, he really is one of those "high earners".

PINC-05--Part 1
I think you are correct Independent. Almost everyone "thinks" they are middle class. However depending upon which definition you look at, the limits for what "middle class" is and is not, are wildly conflicting. I saw one chart that showed anyone making over 70k / yr is considered upper class. Others say over 100k. Why do so many people get the idea that somehow people that make more money than they do, are "taking" that money away from them? That is the "thinking" behind highly compensated earners not being allowed to save more. It is somehow believed that if we were all more "equal" then everything would be ok.... complete craziness....
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Old 02-05-2008, 08:28 AM   #26
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I think you are correct Independent. Almost everyone "thinks" they are middle class. However depending upon which definition you look at, the limits for what "middle class" is and is not, are wildly conflicting. I saw one chart that showed anyone making over 70k / yr is considered upper class. Others say over 100k. Why do so many people get the idea that somehow people that make more money than they do, are "taking" that money away from them? That is the "thinking" behind highly compensated earners not being allowed to save more. It is somehow believed that if we were all more "equal" then everything would be ok.... complete craziness....
I think the definition of each of the "classes" would be the way income is broken down into quintiles (fifths).
Lower class = first quintile
lower middle class = second quintile
middle class = third quintile
upper middle class fourth quintile
uppler class = fifth quintile
According to the census bureau that breaks down like this for 2006. (Historical Income Tables - Households)
Lower = less than $20,035
lower middle = $20,035 to $37,774
middle = $37,774 to $60,000
upper middle = $60,000 to $97,032
upper = greater than $97,032

Further breakdowns by race are here: Historical Income Inequality Tables
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Old 02-05-2008, 09:09 AM   #27
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It depends on the ranges of salaries present in your firm. The idea was to prevent 401(k)s from being an executive perk only.

At my investement bank, you can make 10MM per year and still be allowed to max out your 401(k). I have a buddy at Bank of America, they are limited in the amount they can contribute because the company has a huge pink-collar employee base that make so little money.

So DHs problem isn't that he's 'highly compensated', its that he works in a firm with many others who are poorly compensated.
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Old 02-05-2008, 09:23 AM   #28
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i never heard of that before. I will have to look into this
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Old 02-05-2008, 09:30 AM   #29
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Originally Posted by myself View Post
I think the definition of each of the "classes" would be the way income is broken down into quintiles (fifths).
Lower class = first quintile
lower middle class = second quintile
middle class = third quintile
upper middle class fourth quintile
uppler class = fifth quintile
According to the census bureau that breaks down like this for 2006. (Historical Income Tables - Households)
Lower = less than $20,035
lower middle = $20,035 to $37,774
middle = $37,774 to $60,000
upper middle = $60,000 to $97,032
upper = greater than $97,032

Further breakdowns by race are here: Historical Income Inequality Tables
My comment was that less than 10% of full-time year-round workers earn over 100k. Your numbers show that about 20% of households have total incomes over $97k. The difference, of course, is multiple workers and investment income.

I think that whether you look at household income or individual worker earnings, it's easy for people in the "higher" group (I'm one of them) to overlook the fact that we are "higher".
Some people, however, would define "class" as an attitude, not a specific dollar amount of income. Maybe "You're 'middle class' if you have to work for your money, and you're 'rich' if you can let your money work for you."
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Old 02-05-2008, 09:31 AM   #30
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Thanks Martha! That really shed light on a lot of things... I'm guessing our company might have a safe harbor 401k. They match 100% up to 6% and then gift back whatever we don't spend on health care (so if we budgeted $4.5mm and spend $4mm, they gift $500k back into the 401k plan).

And here I just thought it was because there were fewer low earners at my new company.

edit: I think it's hard for some of us to think about if we're upper class, middle class, whatever. When you live below your means, more money translates to more savings and not necessarily a fancier car. Our breakthrough was realizing that, while I make 5x what my dad makes, he and my mom were doing a better job of saving and investing than I was. So, my wife and I are now trying to live like they do.
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Old 02-05-2008, 09:53 AM   #31
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My comment was that less than 10% of full-time year-round workers earn over 100k. Your numbers show that about 20% of households have total incomes over $97k. The difference, of course, is multiple workers and investment income.

I think that whether you look at household income or individual worker earnings, it's easy for people in the "higher" group (I'm one of them) to overlook the fact that we are "higher".
Some people, however, would define "class" as an attitude, not a specific dollar amount of income. Maybe "You're 'middle class' if you have to work for your money, and you're 'rich' if you can let your money work for you."
Well, those aren't my numbers. They're from the feds.

Here's an interesting one from the feds as well: Historical Income Tables - People
Which only goes up to 2005, but it's based on "per capita". And it shows that the 2005 per capita income was $25,036.

I agree, in general. "Class" is somewhat attitude, however, folks who overspend because they think they can, can/will always feel like lower or lower middle class, simply because "the man" is keeping them down.
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Old 02-05-2008, 10:02 AM   #32
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.... Why do so many people get the idea that somehow people that make more money than they do, are "taking" that money away from them?

That is the "thinking" behind highly compensated earners not being allowed to save more. It is somehow believed that if we were all more "equal" then everything would be ok.... complete craziness....
I guess you read or hear different stuff than I do. It seems to me that the idea that higher income people are "taking" from the lower is usually directed at the extremely high level decision makers. For example, the CEO who collected millions in stock options because he outsourced a bunch of jobs. I've been in that top 10% earnings and never felt that anyone thought I was "taking" money from them.

I have a reaction (maybe over reaction) to your wording about highly compensated "not being allowed" to save more. The gov't doesn't tell us that we can't save more. It simply isn't giving us this particular tax break if we do. More correctly in the 401k situation, it's not giving us a tax break if there is something about our 401k plan that results in only the high income people using it.

I think the underlying problem is that we think the gov't is supposed to "reward" us with tax breaks whenever we do the "right" thing (get a mortgage, live in a high tax state, contribute to charity, save for retirement, etc.). I think that's a silly idea. I'd be happier eliminating all these "tax breaks" and replacing them with lower base rates.
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Old 02-05-2008, 10:31 AM   #33
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My wife had this happen to her last year. No tax rebates for us either.
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Old 02-05-2008, 01:26 PM   #34
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I guess you read or hear different stuff than I do. It seems to me that the idea that higher income people are "taking" from the lower is usually directed at the extremely high level decision makers. For example, the CEO who collected millions in stock options because he outsourced a bunch of jobs. I've been in that top 10% earnings and never felt that anyone thought I was "taking" money from them.

I have a reaction (maybe over reaction) to your wording about highly compensated "not being allowed" to save more. The gov't doesn't tell us that we can't save more. It simply isn't giving us this particular tax break if we do. More correctly in the 401k situation, it's not giving us a tax break if there is something about our 401k plan that results in only the high income people using it.

I think the underlying problem is that we think the gov't is supposed to "reward" us with tax breaks whenever we do the "right" thing (get a mortgage, live in a high tax state, contribute to charity, save for retirement, etc.). I think that's a silly idea. I'd be happier eliminating all these "tax breaks" and replacing them with lower base rates.
You have a good point there. Rather than attaching all sorts of loopholes to tax rates that are too high.... create a lower one, that everyone pays...
I am not quite in that top 10%, I suspect I will be there in 5 years though. I believe as you do... that to get thre I have not taken away any earning power away from anyone else to do it. But you would be amazed how many I have heard say otherwise.
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Old 02-05-2008, 09:34 PM   #35
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The "thinking" behind the discrimination testing is that management must make the plan attractive to lower paid workers in order for everyone to benefit. Otherwise its just another executive compensation plan and there are plenty of other ways to do that. The easiest way to encourage lower paid workers to contribute more is to increase the match, adverstise the plan and educate the folks that aren't contributing more. The limit for contributions from all sources is 45k, so employers could match 200% if they chose, or switch to a safe harbor plan.
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Old 02-06-2008, 12:42 AM   #36
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My last employer did not have a safe harbor. Every year I was there I would get a letter in Feb. saying don't do your taxes quite yet.....we failed the 401k test...again so sit on your hands for 2 months while the bean counters figure out what went wrong...again.

Last year we lost it big time and had to "take back" some of the money we put into the plan. I was maxed out plus the over 50 incremental so that hurt! Hard to believe a company with $2B in sales can't figure out who is paying what to whom in a 401k plan. Glad I finally walked away last year.
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Old 02-06-2008, 05:59 AM   #37
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Some days, I tell ya, I'm ready to walk too, but the FI part is not quite there yet...couple years +/- to go.

I can't even participate in our 401k...my limit is a big fat "0", and it has been that way for over 10 years, even before I gained exec type status. In hindsight though, its not too bad: we do have a 401k replacement plan for HCEs to which MegaC matches dollar for dollar up to 6%, and not having a 401k kind of forces me to put money in a taxable account, making the RE part of FIRE an administratively easier proposition.

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Old 02-06-2008, 10:07 AM   #38
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quick question, is it law that companies must match a 401k plan if offered? I heard this somewhere but my company doesn't offer a matching 401k plan
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Old 02-06-2008, 10:32 AM   #39
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quick question, is it law that companies must match a 401k plan if offered? I heard this somewhere but my company doesn't offer a matching 401k plan
No
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Old 02-06-2008, 10:48 PM   #40
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Originally Posted by Independent View Post
Virtually all working people the the US consider themselves "middle class". But some of us really do have higher incomes than others.
According the the Census Bureau, less than 10% of people who worked full time for "50 weeks or more" in 2006 made more than $100k.

So it's time for a pat on the back, he really is one of those "high earners".

PINC-05--Part 1
It really depends on location. In Silicon Valley or New York City, $100K is not a high salary.
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