Also, doesn't it make sense to spread out the pre-tax 401k contributions through-out the year to get max employer match? Unless FB is different here, most employers I know match up to a certain % of the employee contributions. E.g. My employer matches 100% up to 4% of my monthly base salary. Now if I max out my pre-tax 401k contributions before the year ends, I will lose out on the future employer matches.
In past years Facebook had a “true up” at the end of the year so it didn’t matter. Today it is even better to max things up front; Facebook switched to matching directly 100% up to 50% the max contribution amount. So the first $10kish gets matched immediately. Granted the true benefit is really marginal ( money in the market a few months early).
That's a great benefit that FB has, though the $10k matching limit is meh! Most employers I know have a matching % limit on monthly base salary but don't have a cap. For example, for 2020 I see that my company matched ~$11500 but that's because I spread my contributions through-out the year. One can argue that by front-loading and staying invested in the market, you bridged that gap anyway :)
1. If you max-out your after-tax 401K contributions for your Mega Backdoor Roth (as I understand from your other article), why do you need to do a Backdoor Roth? In fact, I thought we aren't even allowed to contribute more than $61K (2022) combined (401K+employer match+IRA).
2. I've been using Mint.com since 2009 as well, for budgeting and aggregation. It's investment reporting is flaky. But what don't you like in its budgeting features, that you're willing to pay YNAB or Quicken?
The $61k limit is exclusive to 401k contributions. The back door Roth is a separate mechanism with a separate limit. Nice way to get another $6k into my Roth each year.
The mint vs YNAB vs quicken… will be a dedicated post. The short version, particularly in the case on YNAB, is that it is intentionally manual in many regards. It forces you to allocate every dollar in your bank account. Keeps me on top of my spending but just as important helps me identify when I could be investing more.
Oh, really? Are you sure that 401K & IRA contributions are treated separate and not aggregated? I couldn't find any IRS articles reg this :( If you know, please share.
Thanks. Sure, you can invest in both 401k and IRA. But I'm only concerned that the total defined contributions limit applies to the all the retirement plans combined ie. the aggregate of 401k employee contributions, 401k employer matches, AND the IRA contributions. Have you maxed both in the past years and never had a problem filing taxes? And by saying you maxed out your 2021 contributions, you essentially maxed-out at $64k instead of $58k? Right?
P.S. IRS 415(c)(1)(A) isn't clear to me reg this. It says defined contribution limit for retirement plans and elsewhere retirement plan types include both 401k and IRA.
Correct. I have been doing this for a few 5+ years maxing both up to their individual limits. The 401k and IRA are separate instruments. The only connection is that a traditional IRA would not be deductible if you earn over a certain amount and are covered by a work 401k. But in this case we don't care about the deduction, we care about being able to convert the money into the Roth. (disclaimer here that I am not a CPA).
Actually, I just researched more on the definition of "defined contribution" retirement plans and these are employer-sponsored plans, so you are correct. I think I should still be able to contribute the $6k to my 2021 Traditional IRA until April 18, 2022 and then convert. I will just need to be careful about how I report this when I file my 2021 & 2022 returns. Another wrinkle I need to take care of is the pre-tax money I have in my Traditional IRA. I had transferred it over from my 401k into my IRA so that I could invest in better/cheaper funds. Now I will need to roll it back into my 401k first before I can contribute $6k and then convert. Too many steps, I know. But if you have any tips then please share.
Also, doesn't it make sense to spread out the pre-tax 401k contributions through-out the year to get max employer match? Unless FB is different here, most employers I know match up to a certain % of the employee contributions. E.g. My employer matches 100% up to 4% of my monthly base salary. Now if I max out my pre-tax 401k contributions before the year ends, I will lose out on the future employer matches.
In past years Facebook had a “true up” at the end of the year so it didn’t matter. Today it is even better to max things up front; Facebook switched to matching directly 100% up to 50% the max contribution amount. So the first $10kish gets matched immediately. Granted the true benefit is really marginal ( money in the market a few months early).
That's a great benefit that FB has, though the $10k matching limit is meh! Most employers I know have a matching % limit on monthly base salary but don't have a cap. For example, for 2020 I see that my company matched ~$11500 but that's because I spread my contributions through-out the year. One can argue that by front-loading and staying invested in the market, you bridged that gap anyway :)
Andre, I have 2 questions for you:
1. If you max-out your after-tax 401K contributions for your Mega Backdoor Roth (as I understand from your other article), why do you need to do a Backdoor Roth? In fact, I thought we aren't even allowed to contribute more than $61K (2022) combined (401K+employer match+IRA).
2. I've been using Mint.com since 2009 as well, for budgeting and aggregation. It's investment reporting is flaky. But what don't you like in its budgeting features, that you're willing to pay YNAB or Quicken?
The $61k limit is exclusive to 401k contributions. The back door Roth is a separate mechanism with a separate limit. Nice way to get another $6k into my Roth each year.
The mint vs YNAB vs quicken… will be a dedicated post. The short version, particularly in the case on YNAB, is that it is intentionally manual in many regards. It forces you to allocate every dollar in your bank account. Keeps me on top of my spending but just as important helps me identify when I could be investing more.
Oh, really? Are you sure that 401K & IRA contributions are treated separate and not aggregated? I couldn't find any IRS articles reg this :( If you know, please share.
Here a quick vanguard link on the topic: https://investor.vanguard.com/ira/401k-vs-ira#/layer1
Thanks. Sure, you can invest in both 401k and IRA. But I'm only concerned that the total defined contributions limit applies to the all the retirement plans combined ie. the aggregate of 401k employee contributions, 401k employer matches, AND the IRA contributions. Have you maxed both in the past years and never had a problem filing taxes? And by saying you maxed out your 2021 contributions, you essentially maxed-out at $64k instead of $58k? Right?
P.S. IRS 415(c)(1)(A) isn't clear to me reg this. It says defined contribution limit for retirement plans and elsewhere retirement plan types include both 401k and IRA.
Correct. I have been doing this for a few 5+ years maxing both up to their individual limits. The 401k and IRA are separate instruments. The only connection is that a traditional IRA would not be deductible if you earn over a certain amount and are covered by a work 401k. But in this case we don't care about the deduction, we care about being able to convert the money into the Roth. (disclaimer here that I am not a CPA).
Actually, I just researched more on the definition of "defined contribution" retirement plans and these are employer-sponsored plans, so you are correct. I think I should still be able to contribute the $6k to my 2021 Traditional IRA until April 18, 2022 and then convert. I will just need to be careful about how I report this when I file my 2021 & 2022 returns. Another wrinkle I need to take care of is the pre-tax money I have in my Traditional IRA. I had transferred it over from my 401k into my IRA so that I could invest in better/cheaper funds. Now I will need to roll it back into my 401k first before I can contribute $6k and then convert. Too many steps, I know. But if you have any tips then please share.