Bonus Deferment?

[nickelfish1]

My company offers a bonus deferment to our 401ks. Last year I deferred half my bonus. I'm thinking, since they take about 41% out in taxes, it might be better to defer the entire amount. Or do I defer a percentage based on our tax bracket.

Any thoughts?

 

[Dkelly1110]

Bonuses can have different percentages withheld than regular salary, but that money is taxed at the same rate as the rest of your income when you file. I max out my 401k contribution each year, so due to the fungible nature of money, it makes no difference whether I max out with bonus dollars or salary dollars. If you don't max out our 4o1k, then you can try to determine some amount that makes a difference as to the bracket you fall into based on the subsequent reduction in your AGI.

 

[Matt]

I'd say put in as much as you can afford, the benefits of it can decrease with volume if it does shift you into lower tax brackets, but that is a marginal number and shouldn't deter you.

There are other comp plans that defer salary that can be very useful, but not into 401(k) limits (above and beyond those) though they do come with risk of having your money dependent on the solvency of the company through retirement.

 

[nickelfish1]

I only put 7% into 401 because I typically invest 12k (I bump up 2k each year..so next year it'll be 14k) into the stock plan. My company puts a percentage into a pension instead of matching my 401. It makes sense to defer the entire amount since I'm not maxing.

Thank you!

 

[Matt]

You are paying into a company stock plan? I hope it has good incentives to do so, they are a high risk investment and most advice is to get away from them as soon as is safe to do so. They can be smart still, but in order to select it the bonus/matching/discount should outweigh the other options you have.

 

[nickelfish1]

I am. Ive been there only three years. My first year shares are up over $60 per, second year almost $30 and this year is up about $15. I dont action this years options until Dec/Jan though. If the share price is lower than the offer I can opt for a full refund. I don't have to worry about about losing current year money and have staggered standing sell orders in case the stock starts to crap the bed. Our industry is pretty recession proof and we make billions in profit. BUT! It's not outsourcing proof....and there is where my trouble lays. A ton of that's been happening in the last few years.

 

[Matt]

I am. Ive been there only three years. My first year shares are up over $60 per, second year almost $30 and this year is up about $15. I dont action this years options until Dec/Jan though. If the share price is lower than the offer I can opt for a full refund. I don't have to worry about about losing current year money and have staggered standing sell orders in case the stock starts to crap the bed. Our industry is pretty recession proof and we make billions in profit. BUT! It's not outsourcing proof....and there is where my trouble lays. A ton of that's been happening in the last few years.

Keep the concept of NUA in the back of your mind for this stuff: http://saverocity.com/finance/taking-early-401k-distribution-can-savvy-move-net-unrealized-appreciation-tax-rule/