Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Savings prioritization - employer deferred compensation or after-tax 401k?
Old 10-20-2018, 05:02 PM   #1
Recycles dryer sheets
 
Join Date: Jan 2007
Posts: 106
Savings prioritization - employer deferred compensation or after-tax 401k?

Hi all, it's been quite a while since joining this forum 10+ years ago. After spending many many days & nights here back then to educate myself and establish a plan I've only visited from time to time while our savings plan has been in action. Recently my megacorp has introduced a couple of new savings options that have me thinking.

As of this year I have access to both after-tax 401k savings (up to $29k) and a deferred compensation option. DW also works at the same company and together we will be in the 35% marginal tax bracket for 2018. We already max out our pre-tax 401k & employer match and for years have done backdoor Roth IRAs and a lot in a taxable Vanguard savings. The new after-tax 401k contributions can be converted multiple times a year into a roth 401k to minimize capital gains. Together this would be $58k for the both of us.

So my question is this.....assuming it's a no-brainer to switch into using deferred compensation and/or after-tax 401k contributions over a normal VG taxable account, which should take priority? I have access to similar investment options (index funds) in each.

DW and I are 42 now and will be fully FI in another 3-5 years. We may or may not RE but will at least downshift into less busy/stressful jobs. We have 8-9 years of living expenses already accumulated in taxable VG, another 8-9 years in traditional 401ks, and 1-2 years of living expenses in roth IRAs. Kids' (2) 529s are well funded and we keep adding to those separately as part of our expected spend.

We would obviously expect to end up in a lower tax bracket when the deferred comp gets paid out after RE but not sure that outweighs potential Roth advantages. Currently we're maxing out the after-tax 401k -> Roth 401k and putting a small amount in the deferred comp.

Thoughts?
__________________

jblack is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 10-20-2018, 07:49 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 19,514
If I was ihe 35% tax bracket and expected to be in a lower tax bracket in retiremetn then I would favor the deferred comp... recognizing that there might be slightly more risk with the deferred comp in the event of bankruptcy since deferred comp participants are just general creditors of the company.
__________________

__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...60/35/5 AA
pb4uski is offline   Reply With Quote
Old 10-20-2018, 09:14 PM   #3
Recycles dryer sheets
 
Join Date: Jun 2016
Posts: 200
Depends. If you're going to quit voluntarily before age 59.5, you're going to need to have enough after tax assets to get by or else pay a 10% penalty on early withdrawal penalty.
Depending on your tax bracket, tax deferred might not be that much of a savings if your post-employment tax bracket isn't much different than while employed.
Spock is offline   Reply With Quote
Old 10-20-2018, 09:50 PM   #4
Thinks s/he gets paid by the post
 
Join Date: Jun 2016
Posts: 2,251
Depends on the terms of your deferred comp plan. At my last company, deferred comp could be accessed without penalty upon leaving the company at any age. Taxes apply when withdrawn, but no penalty. I was considering ER in my early 50s so I wanted flexibility. Therefore I maxed out deferred comp first, then 401K. This worked well for me. ERd just after 56th birthday, now 58, and living off deferred comp.
Scuba is offline   Reply With Quote
Old 10-21-2018, 04:28 PM   #5
Dryer sheet wannabe
 
Join Date: Oct 2016
Posts: 15
I'm assuming you're talking about a non qualified deferred comp opportunity. If so, the answer will depend a lot on the terms of your plan. Some questions/considerations to think about

Is there a match?
Is there a pre-elected in-service withdrawal provision? If so, what is the minimum amount of time the money must be in the plan?
What are the investment benchmarks options? 401k mirror, fixed rate, other?
How do you feel about being an unsecured general creditor of your employer?
What are the distribution options?
Do you plan to relocate post-retirement?
Is there a rabbi trust?

There are lots of potential opportunities/considerations. In general NDCPs can be great options if utilized properly with understanding of the risks and flexibility tradeoffs that exist
Goawayrain is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Deferred Compensation Savings Plan Willers FIRE and Money 35 06-02-2014 12:05 PM
Deferred compensation for small business owners? someguy FIRE and Money 17 04-12-2014 12:46 PM
Deferred Compensation and Early Soc Sec 4th&Goal FIRE and Money 3 11-30-2007 08:18 PM
Deferred Compensation anonymous_fred FIRE and Money 16 11-04-2007 11:36 AM
Asset Allocation Question - Deferred Compensation b3bobster FIRE and Money 1 11-06-2006 04:51 PM

» Quick Links

 
All times are GMT -6. The time now is 05:35 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2018, vBulletin Solutions, Inc.