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Roth 401k company match question
Posted on 10/16/12 at 6:25 pm
Posted on 10/16/12 at 6:25 pm
My company recently started offering a Roth 401k option in addition to our traditional 401k option. Our current match is 40% of what we put in up to the contribution limit(17,000~). Any company match for the Roth 401k would be put into a seperate pre-tax account(or just added to traditional 401k).
So my question is this: if the Roth 401k is a post-tax contribution but the corresponding match is a pre-tax contribution, will the match be based on my post-tax or gross amount of contributions?
Example(all numbers fictional and used for simplicity):
Gross Pay: 100,000
Tax Rate: 25%
Net Pay 75,000
10% Roth 401k Contribution- $7500
Would my match be 40% of $7500($3000) or 40% of 10% gross ($4000) given that the match is a pre-tax contribution?
My plan here is to contribute to both accounts, but if I am receiving less of a match with the Roth I will stick with just the regular 401k. I asked this to the HR person that supposedly handles our 401k plans but she just got very confused and couldn't answer my question. I know that this could also be different across companies, but does anyone have experience with this? TIA
So my question is this: if the Roth 401k is a post-tax contribution but the corresponding match is a pre-tax contribution, will the match be based on my post-tax or gross amount of contributions?
Example(all numbers fictional and used for simplicity):
Gross Pay: 100,000
Tax Rate: 25%
Net Pay 75,000
10% Roth 401k Contribution- $7500
Would my match be 40% of $7500($3000) or 40% of 10% gross ($4000) given that the match is a pre-tax contribution?
My plan here is to contribute to both accounts, but if I am receiving less of a match with the Roth I will stick with just the regular 401k. I asked this to the HR person that supposedly handles our 401k plans but she just got very confused and couldn't answer my question. I know that this could also be different across companies, but does anyone have experience with this? TIA
4
Posted on 10/16/12 at 7:42 pm to Chris Farley
quote:
I asked this to the HR person that supposedly handles our 401k plans but she just got very confused and couldn't answer my question
Sounds like she sucks at her job.
Sounds like it would be %40 of 7500 but frick if I know.
Their contributuion match should be the same. The only thing that should change is how it's taxed.
This post was edited on 10/16/12 at 7:45 pm
Posted on 10/16/12 at 8:38 pm to Who Me
I would have to think that it's a match of the gross contribution, as with a traditional 401k.
Posted on 10/16/12 at 9:41 pm to Chris Farley
Since its a Roth plan, I would think that all money that goes it has to be net of taxes, but if HR doesn't know, we'll then... 
My answer is C. Go back to HR lady and ask her to talk to the actual plan administrator.
My answer is C. Go back to HR lady and ask her to talk to the actual plan administrator.
Posted on 10/16/12 at 9:59 pm to Chris Farley
Rule #1 about benefits - never rely on HR to have a clue about anything even remotely complex.
You need to sit down with a plan administrator and work through examples. Get it in writing. And prepare for it to still be wrong and probably not worth your time to go somewhere else.
True story - I had an HR airhead tell me (perfectly honestly, she was just clueless) that the promised 4% match was only 2% because it was applied to a paycheck that was twice monthly, so it was pro-rated.
You need to sit down with a plan administrator and work through examples. Get it in writing. And prepare for it to still be wrong and probably not worth your time to go somewhere else.
True story - I had an HR airhead tell me (perfectly honestly, she was just clueless) that the promised 4% match was only 2% because it was applied to a paycheck that was twice monthly, so it was pro-rated.
Posted on 10/16/12 at 10:20 pm to foshizzle
quote:
Rule #1 about benefits - never rely on HR to have a clue about anything even remotely complex.
Ditto.
I asked my HR rep a question about our 401k and she told me she doesn't know because she doesn't participate (a plan with matching). It was the last question I ever asked her.
Posted on 10/16/12 at 10:23 pm to ZereauxSum
quote:
Since its a Roth plan, I would think that all money that goes it has to be net of taxes, but if HR doesn't know, we'll then...
My answer is C. Go back to HR lady and ask her to talk to the actual plan administrator.
Yeah, apparently this should be specified in the plan documents. From what I can tell, it's up the company to decide whether to match gross or net.
Posted on 10/17/12 at 9:10 am to Chris Farley
quote:
So my question is this: if the Roth 401k is a post-tax contribution but the corresponding match is a pre-tax contribution, will the match be based on my post-tax or gross amount of contributions?
I would think gross. If you were contributing to both trad 401k and Roth 401k they don't discount the amount you request be placed in the Roth by your tax withholding, so why would they use the post tax number as the basis for match. It is still % or stated dollar contribution of your gross salary, not pre or post tax salary. My wife's employer makes matching contributions to the traditional only, so if she was 100% Roth all matching goes into the traditional. YMMV. I could be wrong, too.
Posted on 10/17/12 at 4:59 pm to tirebiter
It is based off of the dollars that go into the plan. So in this case the net amount.
Posted on 10/17/12 at 5:55 pm to foshizzle
quote:
True story - I had an HR airhead tell me (perfectly honestly, she was just clueless) that the promised 4% match was only 2% because it was applied to a paycheck that was twice monthly, so it was pro-rated
I'll have to check with our plan administrator. Does anyone think it is worth contributing to(as a substitute for some of my pre-tax 401k contribution) if they only match the net amount? I understand it is important to hedge your tax consequences but not sure if it is worth the lesser match. I'm only 23, not a 1%er OT big swinging dick knocking off $250k.
This post was edited on 10/17/12 at 5:58 pm
Posted on 10/17/12 at 7:02 pm to Chris Farley
quote:
Does anyone think it is worth contributing to(as a substitute for some of my pre-tax 401k contribution) if they only match the net amount? I understand it is important to hedge your tax consequences but not sure if it is worth the lesser match. I'm only 23, not a 1%er OT big swinging dick knocking off $250k.
Will you have a higher tax rate now, or at the time of withdrawal?
Posted on 10/17/12 at 11:22 pm to Chris Farley
quote:
I'll have to check with our plan administrator. Does anyone think it is worth contributing to(as a substitute for some of my pre-tax 401k contribution) if they only match the net amount? I understand it is important to hedge your tax consequences but not sure if it is worth the lesser match. I'm only 23, not a 1%er OT big swinging dick knocking off $250k.
I would be tempted to stay with the pre-tax if they only match post tax on the Roth. You're gaining an extra 10% match on the pre-tax 401k. I'd be surprised if they only match post tax on the Roth, though.
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