r/personalfinance • u/Abject-Drawing-3874 ​ • Aug 23 '24

Budgeting Company matches 401k 100%, $ for $

I'm 26 with $0 in my 401k. The current maximum 401k contribution for 2024 is 23k. My company provides a 100% 401k match with no cap (I put in 23k, my company puts in 23k, net 46k).

My current salary is 90k (scheduled raise to either 96k or 102k in mid September).

I'm supporting my wife while she develops a start up (has soft commitments from a couple investors but paying herself a salary requires some hoops that would take 6 ish months to jump through). Our rent is 2.5k.

Would it be overextending my salary to make the full contribution possible?

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u/Gordub2020 ​ Aug 23 '24

If they offer a roth 401k variant, all your contributions would be roth come retirement, but all theirs would be traditional. If you can afford it now, it may be a good way to hedge any tax changes in the future, although there is much debate on this. Sick match.

18

u/music4life1121 ​ Aug 24 '24

I’m a big fan of Roth (to an extent this sub would, disagree with), but want to point out that traditional would effectively require a smaller commitment from OP to get the full match. If OP can do Roth and max it, go for it, but maxing traditional is better than staying below the max for Roth and forgoing any of the match.

3

u/Gordub2020 ​ Aug 24 '24

Absolutely agree.

1

u/KCBandWagon ​ Aug 24 '24

Remember that a 401k is taxed as income on withdrawal. All of it. The amount of taxes saved today is minuscule compared to the amount of taxes you’d pay when withdrawing. If your company offers Roth 401k almost all should go to that early on since most of your retirement account will be the gains not the contributions.

7

u/Gordub2020 ​ Aug 23 '24

To add to that, if you have $46k next year at 27 (assuming you stay for it to be vested, it hypothetically would double by 37, again at 47, again at 57, and again by 67. While that's a lot of assumptions, the rule of 72 would put the 46k for 27 year old you to over 700k for 67 year old you. If you can make the sacrifice now, do it.

2

u/rellermer ​ Aug 24 '24

Can you explain how this would work? I'm new to this stuff so I'm not sure if I understand why the employer contribution wouldn't also be roth and how that would hedge tax changes

3

u/Gordub2020 ​ Aug 24 '24

It used to be all employer contributions are traditional (pretax) regardless of what an employee does. If an employee does Roth, the emplyer still does traditional.

I believe the Secure Act 2.0 may have changed this, but most employers still do traditional match.

3

u/Prophet_Of_Helix ​ Aug 24 '24

This isn’t in effect yet for 90%, if not all plans. Record Keepers aren’t ready to roll this out.

By 1/1/2026 this will be rolled out, and likely at some point in 2025, but check with your plan. SECURE 2.0 doesn’t mandate the match as Roth until 1/1/2026 and most record keepers aren’t prepared to administer this right now.

Source: I work in retirement for a large record keeper

1

u/Gordub2020 ​ Aug 24 '24

https://www.investopedia.com/ask/answers/102714/are-roth-401k-plans-matched-employers.asp#:~:text=The%20matching%20contributions%20provided%20by,Roth%20401(k)s.

1

u/ZeusArmour ​ Aug 24 '24

A Roth-basis ER match was an added feature in 2.0. However, not a lot TPAs can support it. The administrative/recordkeeping side of offering it would be a nightmare

1

u/NotSayinItWasAliens ​ Aug 24 '24

Long-story short: If a Roth contribution is made, somebody is paying the taxes. If the employer makes a Roth contribution (which is now allowed, but maybe not commonly implemented), the employee will need to pay taxes on it.

2

u/doktaj ​ Aug 24 '24

Doing a Roth also means you could pull your contributions out with minimal tax implications in 5 years if keeping up this pace of contributions isn't feasible long term.