I changed jobs in the middle of this year so my old employer had a 40% 401k match while my new employer has a 50% 401k match. I tried to pull the money from the old employer out but the plan doesn't allow me to do that. Thus, in order to get the most match, I plan to over contribute by contributing the max $23k into my new employer's 401k.
I already invested about $5k with my old employer's 401k so I will have to take a double taxation hit of 42% on my old employer's 401k (my total income is estimated to be $500k, so that's a marginal 35% federal + 7% state income tax rate).
Even though the 42% tax hit is more than the 40% match that my old employer had provided, the fact that my new employer matches at 50% will help to offset that incremental 2% (42%-40%=2%) tax hit. Thus, $5k out of the $23k that I contribute with my new employer will be effectively just a 48% match (instead of 50%).
In summary, I will have contributed a total of $28k into my 401k this year, with $23k in the new employer and $5k with the old employer. The $5k with the old employer will have effectively no match after the tax penalty. $5k with the new employer will have a 48% match rate after distributing the remaining tax penalty, but that's still better than not over contributing because then I would only have a 40% match rate from my old employer for that specific $5k lot.
Is this understanding correct or did I miss any logic?
I already invested about $5k with my old employer's 401k so I will have to take a double taxation hit of 42% on my old employer's 401k (my total income is estimated to be $500k, so that's a marginal 35% federal + 7% state income tax rate).
Even though the 42% tax hit is more than the 40% match that my old employer had provided, the fact that my new employer matches at 50% will help to offset that incremental 2% (42%-40%=2%) tax hit. Thus, $5k out of the $23k that I contribute with my new employer will be effectively just a 48% match (instead of 50%).
In summary, I will have contributed a total of $28k into my 401k this year, with $23k in the new employer and $5k with the old employer. The $5k with the old employer will have effectively no match after the tax penalty. $5k with the new employer will have a 48% match rate after distributing the remaining tax penalty, but that's still better than not over contributing because then I would only have a 40% match rate from my old employer for that specific $5k lot.
Is this understanding correct or did I miss any logic?
Statistics: Posted by WealthWidget — Mon Oct 14, 2024 7:21 pm — Replies 1 — Views 129