I guess aggressive vs conservative is very relative when it comes to DB plans. I get why many are 50-100% bonds/fixed income to minimize volatility and accommodate the older participants, but how many in their 40s would want to be in a 50+ bonds portfolio. Certainly not me. I'd wager many on this board will carry 60/40 or even more equity heavy portfolios into retirement or even until death.
If the DB plan ultimately yields you its performance (net of fees) after considering catch up payments, the more equity exposure the better for the younger workers (provided you can handle the catch up payments and heartburn).
60/40 seems an ideal compromise to me, particular if one sets their target benefit higher at say 5%.
X
-
I see. The plans I've seen usually have an upper limit contribution per year, and that will naturally decrease future contributions necessary (outside of a crash of course).
For those asking about how long you have to make it up, I believe WCI said his plan had to make up 2008/9 over a 5 year period after applying the surplus, so it was not that bad.Leave a comment:
-
One more : https://www.ta-retirement.com/Portal/po_content_viewer.aspx?UserType=X&id=156
Leave a comment:
-
alexDDS: I don’t think so. By law, you must catch it up. What many fail to consider is that these catch up contributions are no big deal in the early years, but lets say that your account has grown to 500,000, the market goes down 30%, and your plan does not have a cushion surplus. You could be on the hook for a 30% + defined target (5%) catch up, that would be something like $175k. almost 15k extra per month. Granted that’s pre-tax, so it will only feel like another maybe 8-9K/month, but still a wallop if you haven’t budgeted for it. Great to “buy low” with tax free dollars if you can afford it. If you can’t it may force you to temporarily suspend you 401k contributions.
Click to expand...
That is why your AA 60/40 is not conservative, its most aggressive for the CB plan portfolio . Sample portfolio planning questionnaire attached:Leave a comment:
-
Rex, my goal in life is to turn tax deferred money into tax free money!!! Tomato Tomahto
Perhaps the otherwise incompetent Donald Trump will provide that window. 50K+ standard deduction. Wowsers. Early retirees, fire up the Roth Conversion train.
Leave a comment:
-
I've heard arguments made both ways on catch up intervals (by people in my own group). Assuming the target benefit is reasonable, another argument in favor of shorter catch up intervals, is that it will almost certainly force you to more effectively buy low and with more tax deferred $. I know you probably don't need the behavioral influence in your other investments, but being forced into buying low with more tax deferred $ is pretty effective in this setting. It may also minimize your "buy high" as your caught up plan will bank more surplus in good times, during which you can decrease contributions if the plan calls for it. One could probably model the overall return with different catch up intervals and I bet the shorter interval would come out on top.Leave a comment:
-
You have to catch up whenever your plan says you have to and over the time course your plan calls for. Some require catch up payments q3yrs, some q1yr, some at random intervals. Some split extra contributions over 12 months, some longer. IMO, more frequent catch up is better, and lets you budget for it the following year. For example, I know I am behind my 5% target by $12,000, so I can plan for an extra $1000 pre-tax monthly catch up the following year. But to each their own. You should have control to change this to your liking.Leave a comment:
-
I’ll look up the limit when I get a chance but no you can’t contribute the max to a DC plan and to a DB plan in the same year. I think WCI has touched on this before. In his case if memory serves me correctly he maxs out his DC plan which limits his DB plan contribution. I do the opposite but then in other years have no DB requirements and put in the full 53k.
Click to expand...
This cant be correct, none of the options I've seen have had this issue. It would depend on your plan, but if self employed and not part of a group thats setting it up you would obviously do this for max benefit.Leave a comment:
-
mzakary: for me, its just ************************ hard to pass up the upfront 45% tax savings.
alexDDS: I don't think so. By law, you must catch it up. What many fail to consider is that these catch up contributions are no big deal in the early years, but lets say that your account has grown to 500,000, the market goes down 30%, and your plan does not have a cushion surplus. You could be on the hook for a 30% + defined target (5%) catch up, that would be something like $175k. almost 15k extra per month. Granted that's pre-tax, so it will only feel like another maybe 8-9K/month, but still a wallop if you haven't budgeted for it. Great to "buy low" with tax free dollars if you can afford it. If you can't it may force you to temporarily suspend you 401k contributions.
I'm curious to what others who had CBPs in the 2008/2009 window did with the big shortfalls. ?Dissolve plan. ?Catch upLeave a comment:
-
Thanks for all the comments. Definitely a more complex topic than I was anticipating.
My understanding is like Gipper's, where the DB and 401K maximums are independent of one another. There are people in my group maxing out their 401k and putting in over 200k in the DB.
Some responses to other comments:
I am in a large multispecialty group, and doubt I will have much input/sway into how the CBP is managed/allocated.
I do anticipate staying in the group for a very long time, I hope. If not, then I agree, short term CBP would be a good way to go.
I have the option to enroll in the CBP every 3 years, when it opens up to new participants (or old ones can drop out). We are at that 3 year cycle now.
Leave a comment:
-
It is my understanding that the computations that determine the max contributions allowed for your DB plan will vary based on many factors (including average age of participants). Have heard of caps ranging from 20K to 125K. I think the IRS limit is in the low 200K range. From my limited experience, docs who used these plans were all still allowed to max out their 401k/PSP. I don't think their is an combined limit between the two, but could be wrong if someone is putting in over 150k/yr into the DB plan. Maybe one of the board experts can correct me if I'm off base.Leave a comment:
-
If you have to cover DB shortfall ,are you required to reduce your DC limit for the years when you cover plan shortfall?Leave a comment:
-
Zaphod is correct. Most of these plans are in addition to and should not hinder your ability to max out your standard defined contribution 401k/PSP/403b.
Also correct many ways to plan and get funds out eventually at a minimum effective tax rate. If you haven't built enough of a taxable account, but instead have been paying off your mortgage, you could always downgrade your primary home and live off the proceeds which are tax exempt up to 500K gain + any improvements. Google and look into Roth conversion ladder strategies.Leave a comment:
-
Point 1 is definitely correct.
Point 2 depends on a lot of factors. As i mentioned you need to look at what your total “income” (including spouse) will be. In fact this is actually a good reason to develop your after tax accounts to allow this to happen. Otherwise you get into a situation with tons of money in qualified plans and unless you want to spend early retirement “poor” (which i dont recommend), it isnt guaranteed you can convert at such a lower rate.
If the partners are older they are unlikely to up the equity percent. What i think you could get changed and should get changed is “the rule” that the plan distributes the extra every year. What you want to do is actually over contribute for a year or two so that in some years you have NO REQUIRED contributions. The reasons for this is that a DB plan affects how much you can put into your 401k if you are contributing to the DB plan that year. Years when you DONT contribute to the DB plan, you can max the 401k to 53 or whatever it is at that time. With the DB plan you get what the benefit is and have to contribute accordingly. With the DC type plans, you get whatever it grows to. In a DC plan, contributing more will result in a larger account in the end (assuming same investments).
I wouldnt just put the minimum in. The reason is these plans are expensive and its like a load. It can be 1.5k per year just to have the plan not accounting for any fees for the investing. So if you put in 50k per year then thats like a 3% load. If you only put in 10k then thats like a 15% load just to have the plan.
I have a DB plan as ive mentioned before and its okay but it isnt necessarily going to save me money. It might but i actually hope it doesnt.
Click to expand...
I think obviously the big point is that every plan is unique and someone can have a good plan, while another can have a very poor plan, so its hard to have a simple yes or no.
How come you cant just contribute the max to your 401k anyway? I dont currently have a cbp/db, but when I looked into them they all were in combo with your 401k with the goal to max out both with DC first of course.
There are several ways to get the money out or convert at a lower rate that dont require retiring early and poor, but definitely requires planning to do right. I have compromised on the taxable account side by having a large allocation to muni bond funds. Even with low/minimal capital appreciation the tax free nature is very powerful, when compared to after tax inflation adjusted returns of say an index.Leave a comment:
Channels
Collapse
Leave a comment: