Compensation (type/taxes)

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rich126
Posts: 4475
Joined: Thu Mar 01, 2018 3:56 pm

Compensation (type/taxes)

Post by rich126 »

I'm talking with some small companies about jobs post retirement. Fortunately in my field jobs are plenty and compensation high, especially compared to my current government job.

Since it will be post-retirement, I'll be getting a small pension and my health insurance from the government. The small companies basically provide an hourly compensation rate based on the position and you have a fair amount of flexibility as to how you receive it (health insurance, more/less leave, etc.)

If I had total flexibility on how I receive the salary, I assume it would be most advantageous to receive as much as I can into a 401K plan as opposed to receiving it as salary? Since I wouldn't pay taxes on it until withdrawal.

For example if two companies offered $250K but one would pay 10% directly into a 401K so that I would get $225K salary + $25K 401K and the other company would only give me 5% in 401K so that I would get $237,500 + $12,500 (401K) then the former would be better for me due to taxes?

From a company perspective does it matter how the money is given? (Is it more expense one way or the other?)
----------------------------- | If you think something is important and it doesn't involve the health of someone, think again. Life goes too fast, enjoy it and be nice.
Doctor Rhythm
Posts: 3061
Joined: Mon Jan 22, 2018 2:55 am

Re: Compensation (type/taxes)

Post by Doctor Rhythm »

It sounds like you’re asking the common question on this forum that’s usually phrased as, “should I max out my tax-deferred savings before investing in taxable?”

The main concern (besides liquidity) is whether your tax rate during distribution will be lower than it is during contribution. While that’s most common, it can be difficult to predict if you’re a high earner/saver, will have a pension, or multiple retirement accounts available. There are other variables like whether you’ll do Roth conversions.
dink2win
Posts: 527
Joined: Tue Jan 15, 2019 5:53 pm

Re: Compensation (type/taxes)

Post by dink2win »

Can you pick Roth or Traditional for the 401k? Or only traditional?

And is it more of a company match (where you can still opt to put another $20,500 into the 401k from your own salary?
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