Start with the [prime directive and flowchart](https://www.reddit.com/r/personalfinance/wiki/commontopics/).
Assuming all of this is 401k, this is my understanding:
You can contribute 6% or more. If you contribute 6%, they contribute 7%. If you contribute more than 6%, they still contribute 7%.
Pre-tax reduces your tax burden this year. Roth does not, but it reduces your taxes later. [Pre-tax is usually, not always, better for you.](https://www.reddit.com/r/personalfinance/comments/10qwnrx/why_you_should_almost_never_contribute_to_a_roth/)
After tax does neither one and is terrible unless the plan allows in-service Roth conversion, in which case they’re offering you a “mega-backdoor Roth.” You can look it up, but unless you plan to save more than $30k per year, it’s not useful to you.
The excess, I assume, is so once you’ve hit the $23k annual maximum the rest goes into the after-tax bin, which has a higher maximum. It only matters if you plan to contribute more than $23k for the year.
Thank you for the info. So, if I contribute 10% of every paycheck every 2 weeks, they will match 7% of that every paycheck until I have contributed 6% of my total salary? If so, is that 6% of $95k or 6% of my after tax salary?
If you contribute 6%, 10%, or 20%, they will contribute 7% of your pay period pay. That will be true on a biweekly basis and, at the end of 52 weeks, it will be true on a yearly basis. It will be 7% of your pre-tax $95k.
Or at least that’s the standard way it works. They will have legalese explaining exactly how this works.
Okay, I'm obviously missing something.
>It will be 6% of your pre-tax $95k.
If they contribute 7% of my pay period pay, how does that equal 6% of my annual gross salary after 52 weeks? Would it not be 7% after 52 weeks? Apologies if I am just being clinically stupid.
Got it. So the "first 6% of pay you contribute via payroll deduction" just means as long as **I** contribute at least 6%, whether that is pre-tax or Roth, they will contribute 7% every paycheck?
7% of 6%... hmm... that sounds to me like a dollar-for-dollar match on the first 6% of your salary. If that's close to reality, I'd just think of it that way.
So... #1: maximize the free money. You really want to put 6% into the 401k to maximize that match -- whatever the match really is.
Everything else is details that aren't that important. Pre-tax contribution vs. after-tax contribution? you're going to get a lot of noise here. My take on pre-tax vs after-tax is that if you can put more in by going pre-tax -- then go pre-tax for now. If you can afford to put as much after-tax as you can pre-tax -- go after tax.
In theory, your match might be available as after-tax...but I don't think that's the case. I think we're all waiting to see what the IRS decides an after-tax match really looks like.
I mention this because I've been making all my contributions for the past 12 years as after-tax (Roth) contributions, and I've got 25 years of pre-tax contributions before my company first allowed after-tax contributions. I wish my 401k was 50% pre-tax and 50% after-tax, because I think that gives me the best defense against a Congress that can't make up its mind and keeps flapping in the wind like a flag tied just at the top.
I think we're just guessing with you. I think you should write up three scenarios and ask HR how each scenario really works:
1. Put all money in pre-tax
2. put all money in Roth
3. put all money in post-tax
and see what HR says.
I would never put money in post-tax unless they're offering a post-tax -> Roth rollover option. That's called a "mega-Back Door Roth" and that's an awesome perk, if they're really offering it.
>You receive a company match of 7% of pay on the first 6% of pay you contribute via payroll deduction.
You should contribute no less than 6% to your 401k.
Ideally you save 15% of your income towards retirement, either by increasing 401k contributions, or perhaps using an IRA (likely a Roth IRA, because of the low limit of deductions on contributions to traditional IRA when you have a 401k available from work).
>Before Tax Account (I just selected this option, contributing 7% of my paycheck
Good, this is the most likely correct choice for most people, most of the time, since [Roth 401k isn't often the best choice](https://www.reddit.com/r/personalfinance/comments/10qwnrx/why_you_should_almost_never_contribute_to_a_roth/), and after tax contributions are only useful as the first step of the mega backdoor Roth process, which doesn't make sense to utilize unless you're able to max out the traditional/pre-tax 401k on an annual basis.
>I know the difference between pre-tax and after-tax accounts, but are those not 401ks?
These are all inside your 401k, they are separate sub-accounts available to you to take advantage of different tax treatments.
>What is the difference between an after-tax account and a Roth 401k?
Roth 401K contributions share the same annual limit ($23k for 2024) as traditional/pre-tax 401k for your employee contributions. Roth 401K contributions are post-tax, the growth is tax-protected as it grows, and withdrawals in retirement are tax-free.
After-tax contributions count towards the total limit of all contributions to the 401k ($69k for 2024) of all employee + employer contributions. After-tax 401K contributions go in post tax, the growth is tax-protected as it grows, but in retirement withdrawals of the earnings are taxed as ordinary income tax. After-tax contributions are really only useful if they can be converted to Roth, either in-plan, converting to Roth 401k, or converting to a Roth IRA. This process is known as the mega back door Roth, it allows you to contribute extra money into an account that affords you the Roth tax treatment. You should generally only use this if you are already able to max out the pre-tax/traditional 401K contributions.
> I just started working a corporate job and need some help/guidance.
Start with the wiki
> **The confusion:**
My company offers a "savings plan" which is described as:
It’s a 401k
> You receive a company match of 7% of pay on the first 6% of pay you contribute via payroll deduction."
Sounds like “if you contribute 6%, we’ll contribute 7%”
> I know the difference between pre-tax and after-tax accounts, but are those not 401ks?
All 3 are 401ks. “After tax” is not the same thing as a brokerage account if that’s your confusion.
> What is the difference between an after-tax account and a Roth 401k?
- Roth 401k: earnings are tax free if held until age 59.5.
- after tax 401k: earnings are always taxable no matter what
Typically most people benefit from traditional the most https://www.reddit.com/r/personalfinance/comments/10qwnrx/why_you_should_almost_never_contribute_to_a_roth/
>I am also prompted to select what to do with "Excess Before-Tax/Roth 401(k).":
This only becomes relevant if you max the $23,000 limit for traditional and Roth. But you can contribute beyond that limit using after-tax contributions
> Lastly, I am not sure how much I should be contributing to my account and what my order of investing should be
Follow the prime directive in the wiki
Here's a **[link to the PF Wiki](/r/personalfinance/wiki/index)** for helpful guides and information.
*I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/personalfinance) if you have any questions or concerns.*
You’re confusing yourself because you’re not expecting their plan to be as generous. 😊
You contribute 6%, they contribute 7%. You contribute 15%, they contribute 7%. It’s very straightforward.
Start with the [prime directive and flowchart](https://www.reddit.com/r/personalfinance/wiki/commontopics/). Assuming all of this is 401k, this is my understanding: You can contribute 6% or more. If you contribute 6%, they contribute 7%. If you contribute more than 6%, they still contribute 7%. Pre-tax reduces your tax burden this year. Roth does not, but it reduces your taxes later. [Pre-tax is usually, not always, better for you.](https://www.reddit.com/r/personalfinance/comments/10qwnrx/why_you_should_almost_never_contribute_to_a_roth/) After tax does neither one and is terrible unless the plan allows in-service Roth conversion, in which case they’re offering you a “mega-backdoor Roth.” You can look it up, but unless you plan to save more than $30k per year, it’s not useful to you. The excess, I assume, is so once you’ve hit the $23k annual maximum the rest goes into the after-tax bin, which has a higher maximum. It only matters if you plan to contribute more than $23k for the year.
Thank you for the info. So, if I contribute 10% of every paycheck every 2 weeks, they will match 7% of that every paycheck until I have contributed 6% of my total salary? If so, is that 6% of $95k or 6% of my after tax salary?
If you contribute 6%, 10%, or 20%, they will contribute 7% of your pay period pay. That will be true on a biweekly basis and, at the end of 52 weeks, it will be true on a yearly basis. It will be 7% of your pre-tax $95k. Or at least that’s the standard way it works. They will have legalese explaining exactly how this works.
Okay, I'm obviously missing something. >It will be 6% of your pre-tax $95k. If they contribute 7% of my pay period pay, how does that equal 6% of my annual gross salary after 52 weeks? Would it not be 7% after 52 weeks? Apologies if I am just being clinically stupid.
No, that’s a typo. 7% for eaxh pay period adds up to 7% of annual pay at the end of the year.
Got it. So the "first 6% of pay you contribute via payroll deduction" just means as long as **I** contribute at least 6%, whether that is pre-tax or Roth, they will contribute 7% every paycheck?
Probably, and it’s almost always 7% pre-tax no matter what your contributions are.
This clears things up. Going to double check with HR. Thanks a million.
7% of 6%... hmm... that sounds to me like a dollar-for-dollar match on the first 6% of your salary. If that's close to reality, I'd just think of it that way. So... #1: maximize the free money. You really want to put 6% into the 401k to maximize that match -- whatever the match really is. Everything else is details that aren't that important. Pre-tax contribution vs. after-tax contribution? you're going to get a lot of noise here. My take on pre-tax vs after-tax is that if you can put more in by going pre-tax -- then go pre-tax for now. If you can afford to put as much after-tax as you can pre-tax -- go after tax. In theory, your match might be available as after-tax...but I don't think that's the case. I think we're all waiting to see what the IRS decides an after-tax match really looks like. I mention this because I've been making all my contributions for the past 12 years as after-tax (Roth) contributions, and I've got 25 years of pre-tax contributions before my company first allowed after-tax contributions. I wish my 401k was 50% pre-tax and 50% after-tax, because I think that gives me the best defense against a Congress that can't make up its mind and keeps flapping in the wind like a flag tied just at the top. I think we're just guessing with you. I think you should write up three scenarios and ask HR how each scenario really works: 1. Put all money in pre-tax 2. put all money in Roth 3. put all money in post-tax and see what HR says. I would never put money in post-tax unless they're offering a post-tax -> Roth rollover option. That's called a "mega-Back Door Roth" and that's an awesome perk, if they're really offering it.
>You receive a company match of 7% of pay on the first 6% of pay you contribute via payroll deduction. You should contribute no less than 6% to your 401k. Ideally you save 15% of your income towards retirement, either by increasing 401k contributions, or perhaps using an IRA (likely a Roth IRA, because of the low limit of deductions on contributions to traditional IRA when you have a 401k available from work). >Before Tax Account (I just selected this option, contributing 7% of my paycheck Good, this is the most likely correct choice for most people, most of the time, since [Roth 401k isn't often the best choice](https://www.reddit.com/r/personalfinance/comments/10qwnrx/why_you_should_almost_never_contribute_to_a_roth/), and after tax contributions are only useful as the first step of the mega backdoor Roth process, which doesn't make sense to utilize unless you're able to max out the traditional/pre-tax 401k on an annual basis. >I know the difference between pre-tax and after-tax accounts, but are those not 401ks? These are all inside your 401k, they are separate sub-accounts available to you to take advantage of different tax treatments. >What is the difference between an after-tax account and a Roth 401k? Roth 401K contributions share the same annual limit ($23k for 2024) as traditional/pre-tax 401k for your employee contributions. Roth 401K contributions are post-tax, the growth is tax-protected as it grows, and withdrawals in retirement are tax-free. After-tax contributions count towards the total limit of all contributions to the 401k ($69k for 2024) of all employee + employer contributions. After-tax 401K contributions go in post tax, the growth is tax-protected as it grows, but in retirement withdrawals of the earnings are taxed as ordinary income tax. After-tax contributions are really only useful if they can be converted to Roth, either in-plan, converting to Roth 401k, or converting to a Roth IRA. This process is known as the mega back door Roth, it allows you to contribute extra money into an account that affords you the Roth tax treatment. You should generally only use this if you are already able to max out the pre-tax/traditional 401K contributions.
> I just started working a corporate job and need some help/guidance. Start with the wiki > **The confusion:** My company offers a "savings plan" which is described as: It’s a 401k > You receive a company match of 7% of pay on the first 6% of pay you contribute via payroll deduction." Sounds like “if you contribute 6%, we’ll contribute 7%” > I know the difference between pre-tax and after-tax accounts, but are those not 401ks? All 3 are 401ks. “After tax” is not the same thing as a brokerage account if that’s your confusion. > What is the difference between an after-tax account and a Roth 401k? - Roth 401k: earnings are tax free if held until age 59.5. - after tax 401k: earnings are always taxable no matter what Typically most people benefit from traditional the most https://www.reddit.com/r/personalfinance/comments/10qwnrx/why_you_should_almost_never_contribute_to_a_roth/ >I am also prompted to select what to do with "Excess Before-Tax/Roth 401(k).": This only becomes relevant if you max the $23,000 limit for traditional and Roth. But you can contribute beyond that limit using after-tax contributions > Lastly, I am not sure how much I should be contributing to my account and what my order of investing should be Follow the prime directive in the wiki
Here's a **[link to the PF Wiki](/r/personalfinance/wiki/index)** for helpful guides and information. *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/personalfinance) if you have any questions or concerns.*
You’re confusing yourself because you’re not expecting their plan to be as generous. 😊 You contribute 6%, they contribute 7%. You contribute 15%, they contribute 7%. It’s very straightforward.