Can someone explain the following offer more in detail to a noob in the 401k industry:

Our 401k allows you to contribute pre-taxed money as well. Vituity matches every $1 with $1.20 for up to 6%. You can invest more than the 6%, but only matches up to that.
After 18 months of service, a discretionary profit sharing contribution of up to 4% of your non-bonus income is granted on April 15 of the following year if active at December 31 of the accrued year for a lump sum funding.


Thanks!

I'm sure an American will chime in but to get you started it's much like the Canadian equivalent which is an RRSP which I do know well.

First and foremost, always match your employer %. Never ever leave free money on the table. It's the best return you will ever get since 100% or more.

A 401k is a tax advantaged account and in this case it's through tax deferal. Any income earned within your 401k is not taxed nor are realized capital gains, etc. You get taxed with your withdrawal that money from your 401k which is presumably in retirement when you're at a lower income and as a result a lower tax bracket.

Contributions are also deducted on your annual tax return. For instance if you're taxable income for the year is 120k and your made 20k of contributions to your 401k you're taxable income is reduced to 100k. Which if you're following along so far makes sense, you're essentially getting tax back on that 20k and will pay it later in life when you take it out of your 401k

Like an RRSP there's also a maximum contribution you can make in the year so if you don't max your 401k through just matching your employer it's advantageous to max it via additional contributions.

There's more but I'll let Americans chime in for the rest.

ahhh this makes sense however i
was wondering what the “$1 with $1.20 for up to 6%” and “After 18 months of service, a discretionary profit sharing contribution of up to 4% of your non-bonus income” mean

Again not so much knowlage on the American side but an RRSP works like this.

Your employer will match up to 8% let's say, different offerings for each employer. You match with 8%. So if your annual income is 100k you contributed 8k over 26 pay periods and your employer contributes 8k over 26 pay periods or in your case it might be 120% of 8k.

Your contribution is a deduction from your net pay for each period but it's going into an employer sponsored investment account, so it's not lost its just not going into your normal chequing account.

Then it appears your eligible for one time bonuses which are lump sum direct contributions from your employer directly into your 401k. Here in Canada you can get bonuses directly contributed into your RRSP, you just need to ensure you have annual contribution room available for that size of lump sum since there's annual limits.

Your pay frequency might also not be 26 pay periods, aka biweekly I just used that as an example.

Could be the 401k differers a bit but that's in a nut shell how a RRSP works here in Canada and I know they're very similar.

This post was edited by SBD on Oct 30 2023 06:55pm

ahhhh makes sense. so 1% is = 1000$?
26 pay stubs for us as well
thank you for this!

Yeah if your salary is 100k.

No problem. Hopefully an American comes through and confirms everything.

it’s close to 200k ish lol but i get the concept

The other item is here in Canada our RRSP contributions almost always go in post tax so we get a deduction on our tax return, if it goes in pre tax which might be your case presumably there's no deduction come tax time.

Hey homie

Everything SBD said about 401k match is correct. Make sure you calculate it So you’re contributing 6% of your pre tax income so you get the maximum company match. Even if you walk away from this company x years down the road that’s still your money

The profit sharing requires a little more information on your end

Even if a company is matching u $1.2 for every $1, you are still under contributing the maximum allotment to your 401k. Employer + employee maximum is actually 66k, whereas your contribution max is 22k. So even at 1.2 for every 1 u won’t hit the max allotment

So the profit sharing can be a lump sum post tax payment to you after the 18 months or is it buffing your 401k the difference of what is maximally allowed

Also is the profit sharing a yearly thing after the initial 18 months or?

This post was edited by Bazi on Oct 30 2023 07:37pm

didn’t wanna bother you lol but i’ll ask. should i continue to put in even after the 6% match or it wouldn’t matter after that?