Can someone explain the 16% DC Plan and Roth vs. Traditional?

[bimmerphile]

That means that (for most properties) any company contributions that are made after that point come back to you as taxable income. It's a nice 15% or 16% pay bump, but you are getting taxed on it. This is one reason why increasing the company contribution to a higher number really isn't a big bargaining priority for many captains as it doesn't do anything for them. It would benefit more junior pilots however who don't hit the 401a limits yet.

I guess that seems to be the standard among legacies, but at blue globe excess of the 415 limit gets spilled into a retirement health account and isn't accessible until you retire, and then only usable for health expenses. If you die before you exhaust it your remaining balance is retained by the Fund.
It's not bad, still get the tax free bennies but some pilots would rather have the $ as taxable income

 

[BobDDuck]

I guess that seems to be the standard among legacies, but at blue globe excess of the 415 limit gets spilled into a retirement health account and isn't accessible until you retire, and then only usable for health expenses. If you die before you exhaust it your remaining balance is retained by the Fund.
It's not bad, still get the tax free bennies but some pilots would rather have the $ as taxable income

We have the same thing where 415 excess flows into our post Medicare health plan. Like you said, because it's not willable after the death of the pilot and spouse, some guys don't like it that way and just want the (taxed) cash. You can control the spill a bit by making sure your $19.5k goes in AFTER the company has maxed out the 401a limit. That means it's your withholdings that spill over, and as you can't personally contribute to an HRA, it comes back to you as cash.

But pilots suck at math, and it takes math to do that correctly, so they just don't like it.

 

[GypsyPilot]

The current limits are about $140k for filing single and $210k for filing jointly. You'll blow through those limits within a year or so at a major, especially if you have a spouse that works. That takes the Roth option off the table (other than the whole backdoor thing, which most accountants will tell you not to do).

I’ve never heard anyone say not to do the backdoor Roth. Why would an accountant say not to do that when you’ve already maxed out all of your pre-tax contributions?

 

[BobDDuck]

I’ve never heard anyone say not to do the backdoor Roth. Why would an accountant say not to do that when you’ve already maxed out all of your pre-tax contributions?

Depending on how much cash you have I traditional IRAs, you at get hit pretty hard with the taxes due to the pro rata rule. Also, the assumption your tax rate will be lower in retirement may or may not be correct.

 

[woodreau]

Plus with the way Congress is they may tax Roths in the future. Then you’re doubly screwed. You already paid taxes on it based on the promise that the earnings and distributions are going to be taxfree. that’s only until Congress changes the rules whenever they feel like it.

since Congress wrote the rules which created the roth in the first place.

 

[GypsyPilot]

Depending on how much cash you have I traditional IRAs, you at get hit pretty hard with the taxes due to the pro rata rule. Also, the assumption your tax rate will be lower in retirement may or may not be correct.

I can’t contribute to the trandional IRAs at all. I agree it’s a bit of a gamble for the future tax rate, but I’m assuming taxes will have to go up before I retire. Not really sure how else our various social programs will be funded otherwise, which is fine I don’t have a problem with that.

 

[woodreau]

2022 contribution limits are now $20.5k and $61k with $6.5k catchup

ira contribution remains unchanged $6k with $1k catchup.

phaseouts for IRA deduction and Roth IRA contributions increase as well.

https://www.irs.gov/pub/irs-drop/n-21-61.pdf

I can’t contribute to the trandional IRAs at all.

Why can’t you contribute to a traditional IRA at all?

 

[GypsyPilot]

2022 contribution limits are now $20.5k and $61k with $6.5k catchup

ira contribution remains unchanged $6k with $1k catchup.

phaseouts for IRA deduction and Roth IRA contributions increase as well.

https://www.irs.gov/pub/irs-drop/n-21-61.pdf

Why can’t you contribute to a traditional IRA at all?

Income limits. It’s not tax deductible for me.
So instead I do the back for Roth for my wife and I. It’s post-tax contributions, but at least it grows tax free.

 

[cezzna]

Lots of good advice here. The only thing I can add is when rolling over your old 401’s, don’t roll them into your current 401. Open a rollover IRA in E*Trade, Robinhood, TD Ameritrade, or something like this. This gives you access to literall every fund, ETF, stock to invest in. More and better choices than even the best of plans out there.

Try and educate yourself. Especially with investing, a financial “guy” is going to use a fairly basic formula to diversify you. You can do this yourself and save the money. When it comes to taxes, trusts, estate planning, back door IRA’s, a financial “guy” may be well worth it.

 

[GypsyPilot]

Lots of good advice here. The only thing I can add is when rolling over your old 401’s, don’t roll them into your current 401. Open a rollover IRA in E*Trade, Robinhood, TD Ameritrade, or something like this. This gives you access to literall every fund, ETF, stock to invest in. More and better choices than even the best of plans out there.

Try and educate yourself. Especially with investing, a financial “guy” is going to use a fairly basic formula to diversify you. You can do this yourself and save the money. When it comes to taxes, trusts, estate planning, back door IRA’s, a financial “guy” may be well worth it.

Good advice. Although some plans do allow you to open up your 401k to pretty much anything as well. We use Fidelity at FDX, and if you open a brokerage link account, you can do anything you want with your 401k, including options trading. You just can’t do margin, which makes sense.

 

[Cherokee_Cruiser]

Income limits. It’s not tax deductible for me.
So instead I do the back for Roth for my wife and I. It’s post-tax contributions, but at least it grows tax free.

For now!

Guarantee by the time we retire, it will be changed. Govt gonna need money and they're going to come after anything they can. This being one.

 

[GypsyPilot]

For now!

Guarantee by the time we retire, it will be changed. Govt gonna need money and they're going to come after anything they can. This being one.

Probably true, but I can only plan for the information I have now.

 

[QXDX]

Hey guys,

I wanted to get a better understanding on the 401k (DC) plan and how the 16% DC works. I also want to see if it's better to go the Traditional or Roth option.

Let's say I have 35+ years at a Legacy. I know I can, right now, put $19.5k in as my employee contribution. (This is also what I am doing at current shop). Should I put my contribution as pre-tax (traditional) or post-tax (Roth)?

After I max out my employee contribution, how does the 16% get added to the account? Can this be pre-tax or post-tax, or both? I am somewhat familiar with the 415 limits up to the $58k or so.

Just looking for general info on how to make this work the best way possible for me in my situation. Thanks!

I'm guessing a financial planner could answer your questions. Why would you come to an aviation board to discuss anything other than aviation?

 

[Kingairer]

I'm guessing a financial planner could answer your questions. Why would you come to an aviation board to discuss anything other than aviation?

I’m just sitting here quietly hoping Dacuj found a new home.

 

[L-16B]

I'm guessing a financial planner could answer your questions. Why would you come to an aviation board to discuss anything other than aviation?

People come on here to post politics too which I don’t agree with. Don’t care what side anyone is on. Now I’ll be all over the what are you cooking thread. Always looking for new ideas.

 

[Cherokee_Cruiser]

Find a good financial planner and accountant. Do not use random internet people, pilots especially, for investment and retirement advice.

Foolish advice.

The best financial advice ever:

Take your company 401K 16% DC out in cash at year end. Pay the tax penalty.

Invest in the following stocks with the stated allocations:



20% Tesla
20% Bitcoin
20% Shibu coin
15% Doge coin
5% RJDC fund

Guaranteed multi millionaire at retirement!

 

[BobDDuck]

Invest in the following stocks with the stated allocations:

20% Tesla
20% Bitcoin
20% Shibu coin
15% Doge coin
5% RJDC fund

So apparently you went to the JetU of engineering schools too.

 

[Cherokee_Cruiser]

So apparently you went to the JetU of engineering schools too.

I see you went to the JetU school of humor.



How were your grades?




Dry.

 

[BobDDuck]

How were your grades?

More than 80% at least.

 

[Cherokee_Cruiser]

More than 80% at least.

Overachiever