Salary vs 401K Matching?

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rich126
Posts: 1977
Joined: Thu Mar 01, 2018 4:56 pm

Salary vs 401K Matching?

Post by rich126 »

I'm in the process of job interviewing and each offer varies in terms of benefits. When comparing salaries vs. 401K matching (assume immediate vesting) in most cases I'd imagine it is better to get a larger 401K matching rather than the larger salary. Obviously you don't pay taxes on the matching, at least not until withdrawal.

Different jobs run from 4% (although potential more, it involves vesting which I'm not counting on) to a very nice 10% matching.
I'd rather not get too specific salary wise but assume it may be in the 24% bracket.

Any other issues here? Assuming the salary level doesn't affect future jobs, etc.

Just trying to see if I'm missing anything. While more is nice, ultimately it will come down to the job and comfort level.
Thanks.
airborne
Posts: 70
Joined: Mon Jan 15, 2018 12:04 pm

Re: Salary vs 401K Matching?

Post by airborne »

When considering salary vs 401k matching, why don't you throw together a rudimentary total comp/"adjusted gross" (again, rudimentary as I haven't considered other pre-tax deductions) pay spreadsheet? You can throw in different salaries and matching percentages and it'll spit out the numbers for your consideration.

Since you mentioned the 24% bracket I'll use $100,000 vs $120,000 for simplicity of the math and assume maxing out the match.

At $120,000 with 4% match, you'd get $4,800 matched, total comp of $124,800, and adjusted gross of $115,200. Total to 401k: $9,600.
At $100,000 with 10% match, you'd get $10,000 matched, total comp of $110,000, and adjusted gross of $90,000. Total to 401k: $20,000.

It might be easier to analyze these types of numbers in your financial, retirement and tax planning than just abstract thoughts.
crefwatch
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Location: New Jersey, USA

Re: Salary vs 401K Matching?

Post by crefwatch »

It's worth noting that lots of matching got reduced or dropped during the Covid-19 pandemic. Of course, many executive salaries (well, particularly at charities) have been cut as well. But matching would be the first to go. No one can predict the future.

If you don't expect to hold the job for a long time, future economic stresses are less important in your current decision making. It might be nice to know if the 401(k) is a low-cost plan, from the employee point of view. Will you have to contribute to your health insurance premium? Are there options or other sorts of bonus plans? Can you count on a single room for travel, and business class air over six hours, or something like that? Not saying what's important to you, only listing ideas.
7eight9
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Joined: Fri May 17, 2019 7:11 pm

Re: Salary vs 401K Matching?

Post by 7eight9 »

I've never had my pay cut but a couple of companies I worked for reduced/discontinued their 401k match shortly after I joined.
I guess it all could be much worse. | They could be warming up my hearse.
JS-Elcano
Posts: 95
Joined: Wed Jun 10, 2020 7:29 pm

Re: Salary vs 401K Matching?

Post by JS-Elcano »

rich126 wrote: Fri Oct 16, 2020 5:11 pm I'm in the process of job interviewing and each offer varies in terms of benefits. When comparing salaries vs. 401K matching (assume immediate vesting) in most cases I'd imagine it is better to get a larger 401K matching rather than the larger salary. Obviously you don't pay taxes on the matching, at least not until withdrawal.

Different jobs run from 4% (although potential more, it involves vesting which I'm not counting on) to a very nice 10% matching.
I'd rather not get too specific salary wise but assume it may be in the 24% bracket.

Any other issues here? Assuming the salary level doesn't affect future jobs, etc.

Just trying to see if I'm missing anything. While more is nice, ultimately it will come down to the job and comfort level.
Thanks.
I would be careful with counting on a particular 401k match. It can always be changed. My employer contributed a very nice amount to my retirement account and five years later reduced it a lot (after the 2008 financial crisis) and it never went up again when the economy recovered. I wouldn't be surprised if they reduce it again now because of Covid (at which point there would barely be any contribution left). Many people contribute so little to their retirement accounts and hardly know anything about saving for retirement that they don't care when matches/contributions are cut. Much harder to cut salaries. Just my two cents. :happy
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teen persuasion
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Joined: Sun Oct 25, 2015 1:43 pm

Re: Salary vs 401K Matching?

Post by teen persuasion »

Watch employer health insurance costs/benefits.

DH switched jobs, but didn't take into account the difference in employee contributions (zero vs $4k annually) and HSA employer contributions ($2k vs zero).
investor1
Posts: 1052
Joined: Thu Mar 15, 2012 8:15 pm

Re: Salary vs 401K Matching?

Post by investor1 »

If you are going to put that money into your retirement portfolio, a 401k match is a way to extend your tax advantaged space since it doesn't count toward your 402g limit.
Tingting1013
Posts: 406
Joined: Mon Aug 24, 2020 5:44 pm

Re: Salary vs 401K Matching?

Post by Tingting1013 »

Hard to believe that two simultaneous job offers would come close enough that a 401k match would tip the scales.
Topic Author
rich126
Posts: 1977
Joined: Thu Mar 01, 2018 4:56 pm

Re: Salary vs 401K Matching?

Post by rich126 »

crefwatch wrote: Fri Oct 16, 2020 5:35 pm It's worth noting that lots of matching got reduced or dropped during the Covid-19 pandemic. Of course, many executive salaries (well, particularly at charities) have been cut as well. But matching would be the first to go. No one can predict the future.

If you don't expect to hold the job for a long time, future economic stresses are less important in your current decision making. It might be nice to know if the 401(k) is a low-cost plan, from the employee point of view. Will you have to contribute to your health insurance premium? Are there options or other sorts of bonus plans? Can you count on a single room for travel, and business class air over six hours, or something like that? Not saying what's important to you, only listing ideas.
Thanks.

I won't go into details but the odds of a 401K reduction is exceedingly slim, as is a pay cut due to the uniqueness, difficulty of finding people qualified to do the work. I certainly don't ever say never but quite slim, especially considering I'm looking at 2-3 year time frame (actually I could retire in 26 months).

I'm mostly dealing with smaller companies so they are more generous, i.e., less overhead with benefits. And I wouldn't take anything that isn't under contract for at least several years. I'm in an unique position where I can likely work as long as I want, which won't be that long unless it can be part time.
portfolio123
Posts: 41
Joined: Mon Jul 13, 2020 9:36 pm

Re: Salary vs 401K Matching?

Post by portfolio123 »

As you're thinking through, don't discount the impact the higher salary will have in years to come in terms of yearly increases (e.g., 3% per raise on average will put you in a better spot each year with the higher starting base - similar to compound interest). Also, it varies by state in terms of required disclosure, but if you're looking for a new job in 5 years and need to disclose your current salary - would help to be at a higher level.
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