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My company provides the standard 401K plan (100% match of first 3%, 50% of next 3%) that I have been diligently contributing to since I was hired. In addition, my company also provides a very generous 9% of pay to an annuity plan each year via biweekly payroll contributions. Employees do not contribute to this and it does not count against the annual 401K contribution limits. I am now fully vested in that plan.
In a short amount of time I've built up a decent sized retirement plan at this company that should continue to grow well since I'm now essentially getting a lot of "free" (employer-paid) contributions (100%/3%, 50%/6%, then 9% of total pay). I have been contributing 10% of pay now for several years towards my 401K. I also have a good sized retirement plan from an previous employer that I've left with the plan due to lower fees and better investment options.
Question is this - would the "free" annuity play into your decision as to your contributions to the 401K plan? In other words, would you feel comfortable contributing the "minimum" of 6% to get the company match knowing you're getting the 9% annuity, or would you still contribute more to the traditional 401K not factoring in the annuity? Maybe I'm overthinking this but it occurred to me the other day that maybe I'm locking up too much of my pay into these retirement vehicles because of the way this is structured. In a normal 401K plan, you put it as much as you can afford to, period. But with the annuity I'm wondering if the annuity shouldn't factor into my decision as to how much to contribute to the 401K plan.
No you are not over thinking. You would have to do some budgets to determine if you are on track for retirement but from your post I assume you are.
I would cap the 401k at the 6% BUT put the rest of the money into a ROTH IRA (or back door). That will give you some non taxable money. Remember your 401k and annuity will be taxable income in retirement. If your 401k has a ROTH option I would consider putting all of your money in the ROTH. The employer match will probably go to an account that will be taxable in retirement.
Tax implications weren't even at top of mind, so I appreciate that. No Roth option at work but with my income I can't contribute to a traditional Roth. I will need to look more into the backdoor Roths though as I know that may be an option for me.
We're 9-years into retirement and have yet to touch our 401K/IRA's or Annuity. However, with a pension and our SS income, my RMD's starting next year will substantially increase our taxable income. There are probably worse problems to have, but, as others have suggested, the notion that your post-retirement income tax rates will be lower than your working-years tax rates... isn't necessarily so. It appears we will wind-up paying a lot more taxes in our later years.
Tax implications weren't even at top of mind, so I appreciate that. No Roth option at work but with my income I can't contribute to a traditional Roth. I will need to look more into the backdoor Roths though as I know that may be an option for me.
Traditional Roth is an oxymoron. It's either a traditional or a Roth.
To back door a Roth, for simplicities sake, you must not have any Traditonal or Rollover IRAs. If you do see if you can transfer into your current employer plan. Then contribute your yearly $5500 to the Traditinal IRA and then a few days later convert to the Roth IRA. Do this in the same year to simplify reporting. I do not recommend a discount broker for these transactions, they make it a PITA. Fidelity has been excellent with handling them in contrast.
Traditional Roth is an oxymoron. It's either a traditional or a Roth.
To back door a Roth, for simplicities sake, you must not have any Traditonal or Rollover IRAs. If you do see if you can transfer into your current employer plan. Then contribute your yearly $5500 to the Traditinal IRA and then a few days later convert to the Roth IRA. Do this in the same year to simplify reporting. I do not recommend a discount broker for these transactions, they make it a PITA. Fidelity has been excellent with handling them in contrast.
You can do a backdoor Roth while having a traditional Ira it just becuase a messy prorata calculation to report the taxable amount
But what if my income is above the maximum threshold?
Income isn't relevant to making nondeductible contributions to a traditional Ira.
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