I don’t know. Good question to ask your payroll department.
I do it all the time. Unfortunately, the tax firms that I’ve been working with are exactly that–tax firms. They tell the client how much their SEP contribution should be, then the client goes and invests it at Edward Jones or wherever. (I plan to change this ASAP.)
And, by definition, to fund a Self-Employed Pension, you have to be self-employed. That includes pretty much any job where you get paid via 1099 instead of W-2. My brokerage business counts. So would BChad’s consulting work (RIP). Sounds like S2000 probably has self-employment income.
And you think $52k is rich? I can allow you to deduct much, much more than that using a Defined Benefit Plan or a Cash Balance Plan. However, they’re prohibitively expensive for most people unless they are making seven figures.
Allow me to comment further - employer matches don’t count toward YOUR $18k or 100%, but the most that can be contributed in your account is $53k.
No.
However, with all this talk of qualified money, I must add that I would only recommend somebody contribute to a qualified plan if they have enough non-qualified money to support it.
Let me explain–if you have $250k in your 401k/IRA, then you have some kind of problem where you have to draw down your savings by, say, $50k, you’re going to get hit with taxes on the $50k, plus an additional $5k penalty. Oftentimes, that penalty is higher than the taxes that you would have paid if it had been a capital gain item. (Not that this is ever a big problem for any of us. We all get seven figures of muni bond interest, right?)
Two things: 1. If you’re over 60, then there’s no reason not to have all you money in qualified money. (You’re foregoing the step-up in basis, but step-up-in-basis isn’t free. You pay for it every year in the form of income tax.) and 2. If your employer offers a match and you don’t contribute to at least get the match, then you are an idiot.
He’s wrong.
Thanks greenman.
Dp
This article almost sounded like a legitimate news source until you got to the last few paragraphs, which read: “Republicans just made it more difficult for low income workers to save for retirement, and that is the way that they want the labor force to work.In Republican economic ideology, there is no ladder of opportunity for the poor. Everything that this Republican Congress and President have done is designed to keep poor people poor. An ample supply of low income workers is needed so that rich people can get even richer.Senate Republicans sent the message that retirement is only an option for the wealthy. If you living paycheck to paycheck, Republicans are making sure that retirement isn’t for you.”
And the fact of the matter is this–everybody has an IRA available to them. The poor have it even better–they have the Roth IRA available. They get to pay no tax now AND no tax later, all while deferring taxes on investment gains! How can you beat that?
^I don’t know if you’re just playing devils advocate or if you seriously consider that to be an academic assault on the Roth IRA. If it’s the latter, you have no business being on a forum for financial professionals.
How Greenie walked into this thread:
My current employer has a garbage 401k. 50% match up to 6%, so an effective 3%. But what really grinds my gears is the 5 year vesting policy for their already garbage match. I basically count it as zero.
My former employer, which I miss more and more as time goes on, gave a 100% match on your first $4k in contributions, and at the end of the year would kick in 6.5% of that year’s salary. So if you made less than or equal to $100k you were looking at 10.5% or higher in match money, which was pretty sick. Thinking of what I left just makes me feel all sad…
I feel your pain bro! I left a place with a 10% match for a place that has match determined at the end of the year based on profitability. But they are really generous, as it tends to be 1-2%. I think my food stipend and phone bill payments are more than they contribute to my retirement. . . SMH
My employer matches 5% for salaried employees. Hourly employees get nothing. 10 years to vest.
But they’re paying for my MBA classes, so I can suck in my ego for two years like I suck in my dad abs at the beach.
So when you guys are talking about your employer matching your 401k contributions that’s in addition to the company paying into a pension or another retirement account right?
Mine pays >10% of salary and then matches your additional contributions up to 10% I think so I’m paying in low single digits and getting >20%
If you’re being serious, then JEEEZUS that’s nice.
Ouchhh dude that vesting period is killer, if you are going to have a period like that you BETTER have an impressive match. Prior employers is nice, i like those kinds would really like to get involved with a company with a better plan
When I had 10% match, there was some to a pension. But no current employer has none. You are just in a very impressive program
what if you max that traditional 401(k) now, get that nice income reduction, then when you want to withdraw, work a minimum wage job, and withdraw the money at a lower tax rate? Is that possible kids?