How many in pre-retirement make catch-up contributions to 401K

[John105]

My issue with pouring lots of extra earnings into the stock market, especially a tax-deferred account such as an IRA/401/403/etc., is that it's tied up in the stock market, in a 401k/etc., you're beholden to your employer's HR department (i.e.: low IQ people) selection of 401k salesmen who have selected "great" funds for you to invest your hard-earned money.

Then comes the time when mandatory distribution might kick in and you don't necessarily need/want it at that point.

I know my groanings don't apply to all or possibly many, but I'm at a point where I will continue to contribute ~10% to an employer-sponsored plan but due to what seems like continuous volatility, I am looking for other avenues of investment outside the stock market.

So my thoughts are don't slam people for not throwing as much as they can into an employer-sponsored plan. Most of them suck with regard to choices of funds.

My ex boss' situation. Very high salary. 0% to 401k.

Drove the smallest Kia.

6500 sq ft house (this likely is one factor).

2 kids in college, 1 about to enter.

He told me his contribution for mediocre colleges was $24k each (we all know how this goes, elite colleges are nearly free or 10% plus 4.6% of assets, but lesser colleges offer less assistance and penalize earners more).

His auto insurance doubled when the youngest began to drive.

Wife does not work, he provides medical and ours is expensive.

All of the above would imply he needs that extra $18.5k that was allowed 6 years ago. But it would be all that much as net pay.

 

[99Saturn]

My issue with pouring lots of extra earnings into the stock market, especially a tax-deferred account such as an IRA/401/403/etc., is that it's tied up in the stock market, in a 401k/etc., you're beholden to your employer's HR department (i.e.: low IQ people) selection of 401k salesmen who have selected "great" funds for you to invest your hard-earned money.

Then comes the time when mandatory distribution might kick in and you don't necessarily need/want it at that point.

I know my groanings don't apply to all or possibly many, but I'm at a point where I will continue to contribute ~10% to an employer-sponsored plan but due to what seems like continuous volatility, I am looking for other avenues of investment outside the stock market.

So my thoughts are don't slam people for not throwing as much as they can into an employer-sponsored plan. Most of them suck with regard to choices of funds.

Just mentioned this in a different thread but something to keep in mind is Roth IRAs don't have RMDs.

Also, granted it is much less common I think but some employers are offering Roth 401k options as well, which can have the same benefit come retirement, leaving the company, etc.

 

[John105]

Just mentioned this in a different thread but something to keep in mind is Roth IRAs don't have RMDs.

Also, granted it is much less common I think but some employers are offering Roth 401k options as well, which can have the same benefit come retirement, leaving the company, etc.

Not sure if today, but my first employer, and my wife's when she worked at the largest mutual fund co in the world (I think unless it changed), they offered both pre and post tax contributions.

When my wife rolled her's into a Fidelity ROTH, they bungled it and treated it all as pre. She actually sat in front of a person and did it, and they still screwed it up. We noticed just last week, that office is no longer there.

 

[99Saturn]

Hate to give me age away but who cares, right? haha

I inadvertently starting making catch up because my % exceeds the IRS maximum. I thought that my employer bungled it and panicked, but it's age related.

Why do I say my employer? In 2020, instead of adjusting my FSA to $0, they terminated me 8/31/20. In November 2020, I got an email. You have $2700 and your last day to spend it is 8/31/20. THE 20 SOMETHING HR DIRECTOR SAID, "I'll see what, if anything, can be done."

I've lost 10X that on the stock market, but have never lost anything near that amount due to administrative error. end rant lol

The use it or lose it nature of FSAs and HRAs has always made me hesitant unless I knew when the expense was coming!

 

[John105]

The use it or lose it nature of FSAs and HRAs has always made me hesitant unless I knew when the expense was coming!

It has added up to fancy sunglasses--I must have at least 6 pairs that push $800. Can you imagine if my prescription changed hahahahahaha

The ONLY one time it made any sense, was when my 5 y.o. son broke his leg.

I don't do it today, because I'm on my wife's health plan and it has a $0 deductible (school system).

We're only a family of 3, but maybe if a family is 5+ setting that aside and having a deductible is a sure thing...

 

[99Saturn]

Not sure if today, but my first employer, and my wife's when she worked at the largest mutual fund co in the world (I think unless it changed), they offered both pre and post tax contributions.

When my wife rolled her's into a Fidelity ROTH, they bungled it and treated it all as pre. She actually sat in front of a person and did it, and they still screwed it up. We noticed just last week, that office is no longer there.

Ironically mine is the completely opposite experience. Wife and I both had/have Roth 401ks respectively. Wife left her employer, employer cut two checks when requested, one for the pre-tax company contributions and one for the post-tax employee contributions. Post tax employee contributions went to her Fidelity Roth IRA. Pre-tax went right to a rollover IRA and ultimately then rolled over into her Roth IRA (quarterly payments and April 15th will not be fun!). And we did it all through the app (although had a few phone calls with Fidelity just to make sure we were on the right track.

 

[99Saturn]

It has added up to fancy sunglasses--I must have at least 6 pairs that push $800. Can you imagine if my prescription changed hahahahahaha

The ONLY one time it made any sense, was when my 5 y.o. son broke his leg.

I don't do it today, because I'm on my wife's health plan and it has a $0 deductible (school system).

We're only a family of 3, but maybe if a family is 5+ setting that aside and having a deductible is a sure thing...

Lol, your sunglasses example is one reason I don't like them. I've done an HRA and maybe and FSA a few times, and ended up drawing down my balance by buying OTC meds and stockpiling etc.

Conceptually I know I should probably save a few bucks because I know some of the fixed expenses like vision test, new glasses, etc. but I have that pause of what if I want to up and quit... thinking through the same thing around a dependant care FSA if i have to pay for pre-K but that is likely an easier one to justify given the timing of the expenses.

I'm lucky enough (not that all will view it as "lucky") to have a HDHP with an HSA option. Since HSAs are portal and funds are mine a lot easier to decide to contribute. This makes my FSA option even more limited to a limited purpose FSA for dental and vision, so forecasting my expenses has to be a lot more accurate too haha!

 

[Pablo]

I say yes if young max out Roth, then max other stuff, then save more on top. If you are not saving 25-30% then fix what needs fixing and save 25-30% of every bit of income.

In my case (which I am not advising NOW), which was good and which was bad for US,. I started a regular 401K in the olden early days and had a decent pile when Roth came out. Well then I had a couple businesses, regular healthy salary tech job, part time job and the wife had two jobs. Taxes were pretty nasty at the point. 401K was a refuge. Plus didn't want to pay taxes on Roth conversion. I am going to pay the piper at 72+. We'll see.

 

[Pablo]

PS I still have a decent chunk in my HSA. I use it various med stuff.

 

[John105]

Lol, your sunglasses example is one reason I don't like them. I've done an HRA and maybe and FSA a few times, and ended up drawing down my balance by buying OTC meds and stockpiling etc.

Conceptually I know I should probably save a few bucks because I know some of the fixed expenses like vision test, new glasses, etc. but I have that pause of what if I want to up and quit... thinking through the same thing around a dependant care FSA if i have to pay for pre-K but that is likely an easier one to justify given the timing of the expenses.

I'm lucky enough (not that all will view it as "lucky") to have a HDHP with an HSA option. Since HSAs are portal and funds are mine a lot easier to decide to contribute. This makes my FSA option even more limited to a limited purpose FSA for dental and vision, so forecasting my expenses has to be a lot more accurate too haha!

Would you like to know about my Omron blood pressure machine, that looks like the same one you see, when you go to your dr's office or Labcorp? I was considering getting the telescoping stand, to spend even more. I know, doesn't make any sense. To make matters worse, some companies allow the funds to be used by 3/31 of the next year. Mine was 12/31. I'm like Kramer and the Hobart meat slicer....

 

[John105]

PS I still have a decent chunk in my HSA. I use it various med stuff.

My bro and my buddy both have HSAs and they told me as a matter of fact the balance is in the mid 20's. I totally get the idea--they can quit or get fired and it's theirs to keep.

BUT, my strong belief is that the employers forced them into that position. And the balances are high because they didn't need to use the health care.

I happen to know both personalities--when someone gets sick, there is a conscious decision on whether to spend $130 or not. Compounding other decisions are very high deductibles. This thinking also applies to children, who really cannot make the decsion for themselves. I went to CHoP last summer because I was afraid my son had cauliflower ear. It was not and the MD was surprised we came in. After I told her why, she then said she understood (ear could be deformed, it was totally black/blue). If I had a HSA that would have been likely $1300, not $100.

All of this is the lesser of evils imho. I've always had the best health plan and paid dearly, and rarely used. So in retrospect yes the HSA would have worked. But now is not the time for me to start that....

 

[Hillbilly Deluxe]

My wife had about $25k in her HSA accounts from previous employers until last year. She was having some serious issues, had a comprehensive test for Lyme and that money is now gone. It was spent on MOOP expenses, out of network docs, tests, etc. over the course of 18 months.

I'm glad she had been putting money in those over the last 15 years...

 

[JTK]

..If I had a HSA that would have been likely $1300, not $100.

I'm probably missing the point, but why would they charge you differently if you had an HSA? My HSA is just a credit card I can use to pay for medical expenses?

 

[ARCOgraphite]

The title of this thread just reminded me, my now retired wife can make some catch up IRA contribution as she was employed and had earnings till the end of April this year - which means I can make a spousal/family IRA contribution also - though I haven't worked for 5 years. Filing as: Married-Jointly.

All this to hopefully offset a possible horrendous tax burden for TY 2023 consisting of two two people now collecting SS and her working making good money for a few months. A fair portion of SS "income" will surely be taxed in this scenario.

Maybe some IRS deduction phase-out rule out will kill my plan. I hope not. I am just trying Intuit Turbotax for the first time and waiting anxiously for her W2 to get cracking. - Ken

 

[John105]

I'm probably missing the point, but why would they charge you differently if you had an HSA? My HSA is just a credit card I can use to pay for medical expenses?

Example, on wife’s plan now, if I had hip surgery it’s $100. When I use the app to calculate it will say in network cost $42,000, your cost $100. If I had a brain transplant, same $100.

My old health plan that was the best offered in 2022, I spent $1200 on 2 ultrasounds and an X-ray. If I had waited to 1/1/23, $40.

It’s because our HSA is called a high deductible plan. The insurance costs less and some funds are placed in the account. But the deductible is even higher than the old plan, which was $1800.

Imagine if car insurance had an HSA. No claims for 40 years is winning…

 

[99Saturn]

I'm probably missing the point, but why would they charge you differently if you had an HSA? My HSA is just a credit card I can use to pay for medical expenses?

HSAs are contingent on having an HDHP (High Deductible Health Plan). Part of having a HDHP is having a minimum deductible which is set higher than a traditional plan, basically along with the benefit of a company contribution to an HSA, being able to put money pre-tax in your HSA, and presumably a lower monthly premium, you sign up for paying the first $X out of your own pocket (at the insurance negotiated rate). For 2024, that's $1,600 for individual deductible and $3200 for the family deductible. Out of pocket max is higher too, although a plan does not have to go to the max out of pocket max ($8,050 for individual and $16,100 for a family in 2024).

The benefit/tradeoff, is this gives someone the opportunity to contribute to an HSA pre-tax. Money spent from the HSA for qualified medical expense are not subject to tax, and can be spent without penalty. You can invest an HSA, and growth is not taxed if it is spent on a qualified expense. In retirement, money can also be withdrawn for non-qualified expenses. In that case they would be subject to income tax at the prevailing rate, still in retirement, tax benefit continues for qualifing expenses.

 

[JTK]

Example, on wife’s plan now, if I had hip surgery it’s $100. When I use the app to calculate it will say in network cost $42,000, your cost $100. If I had a brain transplant, same $100.

My old health plan that was the best offered in 2022, I spent $1200 on 2 ultrasounds and an X-ray. If I had waited to 1/1/23, $40.

It’s because our HSA is called a high deductible plan. The insurance costs less and some funds are placed in the account. But the deductible is even higher than the old plan, which was $1800.

Imagine if car insurance had an HSA. No claims for 40 years is winning…

You are considering the fact you must have a high deductible plan in order to even have the HSA. Got it.

I don't have a choice with my employer. For my family of 6, I pay about $6K/yr out of my paycheck for coverage with a $3100 deductible. Max out of pocket (in network) is $7K. $21K out of network. I put $7K/yr in my HSA.

 

[wpod]

My rant is,,,,, I was always told that the taxes would be lower when I retired and now being retired my taxes are much higher than when I was gainfully employed. More income is better and most important as an in general,,, low and or affordable expenses [living within your/my means] I am not that bright so that is all I will add.

 

[John105]

You are considering the fact you must have a high deductible plan in order to even have the HSA. Got it.

I don't have a choice with my employer. For my family of 6, I pay about $6K/yr out of my paycheck for coverage with a $3100 deductible. Max out of pocket (in network) is $7K. $21K out of network. I put $7K/yr in my HSA.

I can relate. My old insurance was like $600/mo, PPO, $1800 deductible but I’m not sure what max out of pocket was. This was fine for dr visits as $30 regular $60 specialist.

My wife being in the teachers Union is a game changer. About $350/mo no deductible. Pretty sure when out of network there is a whole setup like traditional plans with deductibles and maxes out of pocket.

This is all a game. A coworker near me, his wife is a NJ teacher.

$10 for dr, $15 for specialist, $15 for urgent care, $125 for emergency. $0 deductible.

Ours is $20/$40/$75/$100. So clearly not as good other than emergency room being $25 less. Imho it’s all about what an employer is willing to spend. I haven’t done it recently but it was always coming back as over 20k per person for health insurance. Employers routinely play with the % they contribute. My wife’s employer is 88.25%. Why it’s good is even if costs rise, the burden is on them. What my employer kicks in is a disgrace. I don’t even want to say buts it’s barely 60%…

Wife just got a generic epipen. $35. I said what????? It was free, name brand, in 2013, don’t know after that. It was a $25 copay with $25 mfg coupon so $0.

Today an epipen is NOT COVERED. Only generic.

and generic like $160 online no insurance. Name brand $600?!

 

[Billy_D]

For 2024 the 401(k)limit is $23,000 for employee contributions and $69,000 for the combined employee and employer contributions. Some 401(k) plans allow before and after taxes contributions, so reaching the 69K ceiling is possible. Maybe that's the reason why only 10% of eligible employees are taking advantage of $7500 catch up contribution. They are already saving a decent amount.