add to DW 401k while withdrawing from (self) 403b?

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spammagnet
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add to DW 401k while withdrawing from (self) 403b?

Post by spammagnet » Thu Jun 14, 2018 10:50 am

All, I'll be retiring in a few months. DW will continue to work and has a good 401k plan. I'm eligible for SS benefits but am not at FRA and will defer benefits until 70, anyway. I don't have any pensions to speak of. ($3K/year starting in a couple years.) We'll need to supplement her income with withdrawals from my deferred accounts, to maintain our standard of living.

Does it make sense for her to contribute to her 401k while I withdraw from my 403b? That seems illogical but there may be advantages, such as helping with Roth conversions. ORP suggests some Roth conversions but doesn't distinguish between spouses as the source of the withdrawal.

Suggestions? Observations?

Thanks

chevca
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Re: add to DW 401k while withdrawing from (self) 403b?

Post by chevca » Thu Jun 14, 2018 11:01 am

Does she contribute to her 401k now? If so, you are asking about upping her contributions?

I'm no expert, but it sounds like pretty much a wash for you guys at this point. You would be withdrawing from your 403b and paying taxes there, so she could contribute to her 401k and defer taxes there. It may come down to tax brackets with you retired now and what may be when DW retires someday. Will there be a big change when she retires?

Katietsu
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Re: add to DW 401k while withdrawing from (self) 403b?

Post by Katietsu » Thu Jun 14, 2018 11:11 am

I agree that it is likely not going to make much difference. There are a few things I can think of that could be impacted. If you and your wife are different ages, it will eventually affect RMD’s. And state taxes can sometimes be affected by how the income is split between spouses. Medicaid nursing home eligibility can be affected by the distribution between spouses of retirement assets.

delamer
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Re: add to DW 401k while withdrawing from (self) 403b?

Post by delamer » Thu Jun 14, 2018 2:16 pm

If there is an employer match for your wife’s 401(k), don’t pass that up.

spammagnet
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Re: add to DW 401k while withdrawing from (self) 403b?

Post by spammagnet » Thu Jun 14, 2018 10:17 pm

DW is contributing the max 24.5K/yr. Her megacorp employer matches 8% of salary (she's a long-term employee) but this year started deferring until the first quarter of next year, at which point you get a lump sum. You have to be employed on 12/31 to get anything. (Their PR spin is amusing - employees aren't subject to market loss during the year in which they don't have the money.)

Our tax-deferred are about equal. We'll draw heavily on mine until SS at 70, the switch to a smooth rate of withdrawal of the pittance remaining after that. We'll draw hers as a SWR from the start of her retirement. My forecasts suggest RMDs won't come into play. (We don't have millions.)

I'm familiar with the strategy regarding the low income/low asset spouse possibly being eligible for Medicaid for LTC. My Dad's wife is benefiting from that now. His assets are protected by a trust but they're not that much. He may well deplete them on his own LTC, if he gets to that point. I, on the other hand, am unlikely to benefit due to relatively high SS benefits.

So, overall, it seems like a wash? I don't think that reducing my withdrawals and her contributions would result in my own tax-deferred assets remaining high enough that RMDs would kick us into a higher tax bracket.

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FIREchief
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Re: add to DW 401k while withdrawing from (self) 403b?

Post by FIREchief » Thu Jun 14, 2018 11:16 pm

spammagnet wrote:
Thu Jun 14, 2018 10:17 pm
DW is contributing the max 24.5K/yr. Her megacorp employer matches 8% of salary (she's a long-term employee) but this year started deferring until the first quarter of next year, at which point you get a lump sum. You have to be employed on 12/31 to get anything. (Their PR spin is amusing - employees aren't subject to market loss during the year in which they don't have the money.)
YIkes! What a steaming crock of *beep*. That's Megacorp for ya!! Not only take away some benefit, but insult their intelligence at the same time.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

spammagnet
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Re: add to DW 401k while withdrawing from (self) 403b?

Post by spammagnet » Thu Jun 14, 2018 11:39 pm

FIREchief wrote:
Thu Jun 14, 2018 11:16 pm
YIkes! What a steaming crock of *beep*. That's Megacorp for ya!! Not only take away some benefit, but insult their intelligence at the same time.
Considering other ways they demonstrate their avarice, it doesn't surprise me. They haven't given raises for years. Instead, they give an annual bonus, the key difference being it doesn't increase your base salary and therefore doesn't affect anything else based on your salary, like your 401k match. In addition, whatever measly % increase they give (everybody gets theirs at the same time) is not based on your salary. Instead, it's based on the mid-point salary. If you're at or near the top of your scale, you really don't get the advertised %. (Of course, they don't go out of their way to explain that.)

I will acknowledge an exception to the rule about not getting your match if not working on 12/31. If you retire mid-year, you'll still get it. (Next year, of course.) Since they don't have a DB pension I don't know how they determine if you're retiring, though.

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FIREchief
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Re: add to DW 401k while withdrawing from (self) 403b?

Post by FIREchief » Fri Jun 15, 2018 12:24 am

spammagnet wrote:
Thu Jun 14, 2018 11:39 pm
FIREchief wrote:
Thu Jun 14, 2018 11:16 pm
YIkes! What a steaming crock of *beep*. That's Megacorp for ya!! Not only take away some benefit, but insult their intelligence at the same time.
Considering other ways they demonstrate their avarice, it doesn't surprise me. They haven't given raises for years. Instead, they give an annual bonus, the key difference being it doesn't increase your base salary and therefore doesn't affect anything else based on your salary, like your 401k match. In addition, whatever measly % increase they give (everybody gets theirs at the same time) is not based on your salary. Instead, it's based on the mid-point salary. If you're at or near the top of your scale, you really don't get the advertised %. (Of course, they don't go out of their way to explain that.)

I will acknowledge an exception to the rule about not getting your match if not working on 12/31. If you retire mid-year, you'll still get it. (Next year, of course.) Since they don't have a DB pension I don't know how they determine if you're retiring, though.
I think technically retirment is just a voluntary quit. If you happen to have a vested pension benefit when you quit, they may call it retirement.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

hawkfan55
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Re: add to DW 401k while withdrawing from (self) 403b?

Post by hawkfan55 » Fri Jun 15, 2018 12:37 am

I've been retired for 1.5 years and withdrawing from my Rollover IRA account while my DW contributes the max to her deferred 403b plan. We liked the Stable Value plan she invests in and she is four years younger so RMDs won't start as soon as mine.
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lstone19
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Re: add to DW 401k while withdrawing from (self) 403b?

Post by lstone19 » Fri Jun 15, 2018 7:48 am

In some states (such as Illinois where I live), retirement income (anything reported on a 1099-R) is not subject to state income tax. So moving money through a retirement account saves on state income tax. Illinois' income tax is just shy of 5% (for all income levels) so if you put $10,000 in wife's 401k, she saves $500 in state income tax and meanwhile the $10,000 you take out of your plan is not taxed by the state (federal taxes wash regardless of bracket). So a $500 savings by looping the money through the retirement accounts.

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teen persuasion
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Re: add to DW 401k while withdrawing from (self) 403b?

Post by teen persuasion » Fri Jun 15, 2018 8:09 am

NY exempts only the first $20k of pension/retirement account income per person per year from state taxes. Currently all our traditional retirement savings are in DH's name (I have no access to a 401k, and IRAs are Roth), so your scenario would make sense for us to drawdown DH's traditional balance and increase mine. The $20k does not add - DH can't make use of my $20k exemption. Much better to have some traditional contributions in both of our names, rather than the same total in one name only.

delamer
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Re: add to DW 401k while withdrawing from (self) 403b?

Post by delamer » Fri Jun 15, 2018 11:23 am

spammagnet wrote:
Thu Jun 14, 2018 10:17 pm
DW is contributing the max 24.5K/yr. Her megacorp employer matches 8% of salary (she's a long-term employee) but this year started deferring until the first quarter of next year, at which point you get a lump sum. You have to be employed on 12/31 to get anything. (Their PR spin is amusing - employees aren't subject to market loss during the year in which they don't have the money.)

Our tax-deferred are about equal. We'll draw heavily on mine until SS at 70, the switch to a smooth rate of withdrawal of the pittance remaining after that. We'll draw hers as a SWR from the start of her retirement. My forecasts suggest RMDs won't come into play. (We don't have millions.)

I'm familiar with the strategy regarding the low income/low asset spouse possibly being eligible for Medicaid for LTC. My Dad's wife is benefiting from that now. His assets are protected by a trust but they're not that much. He may well deplete them on his own LTC, if he gets to that point. I, on the other hand, am unlikely to benefit due to relatively high SS benefits.

So, overall, it seems like a wash? I don't think that reducing my withdrawals and her contributions would result in my own tax-deferred assets remaining high enough that RMDs would kick us into a higher tax bracket.

Regardless of when the match is paid out (and I agree the change is slimy), there is no good reason to pass up 8%.

Although I couldn’t tell from your post if your wife is required to contribute 8% (or some other figure) to get the 8% match.

spammagnet
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Re: add to DW 401k while withdrawing from (self) 403b?

Post by spammagnet » Fri Jun 15, 2018 11:28 am

delamer wrote:
Fri Jun 15, 2018 11:23 am
Regardless of when the match is paid out (and I agree the change is slimy), there is no good reason to pass up 8%.

Although I couldn’t tell from your post if your wife is required to contribute 8% (or some other figure) to get the 8% match.
She is required to contribute to get the match. We'll put that much in but it doesn't seem to matter if we don't do more than that.

Thanks

delamer
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Re: add to DW 401k while withdrawing from (self) 403b?

Post by delamer » Fri Jun 15, 2018 11:36 am

spammagnet wrote:
Fri Jun 15, 2018 11:28 am
delamer wrote:
Fri Jun 15, 2018 11:23 am
Regardless of when the match is paid out (and I agree the change is slimy), there is no good reason to pass up 8%.

Although I couldn’t tell from your post if your wife is required to contribute 8% (or some other figure) to get the 8% match.
She is required to contribute to get the match. We'll put that much in but it doesn't seem to matter if we don't do more than that.

Thanks
We basically did the same thing — cut my husband’s contribution to his 401(k) back to the minimum needed to get the match once I retired. We had what we needed saved for retirement at that point, but wanted to get the “free money.”

Twood
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Re: add to DW 401k while withdrawing from (self) 403b?

Post by Twood » Fri Jun 15, 2018 1:52 pm

One additional factor I can think of is assessing the quality/cost of your funds in your vs her 403b/401k. If you have high expense only options you don't like in yours, and hers is full of great low cost index funds, then you could take this opportunity to "move" the money.

spammagnet
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Re: add to DW 401k while withdrawing from (self) 403b?

Post by spammagnet » Fri Jun 15, 2018 5:39 pm

Twood wrote:
Fri Jun 15, 2018 1:52 pm
One additional factor I can think of is assessing the quality/cost of your funds in your vs her 403b/401k. If you have high expense only options you don't like in yours, and hers is full of great low cost index funds, then you could take this opportunity to "move" the money.
We have good choices in both so doing so adds no value, but how would you propose that we transfer assets from from my deferred account to her deferred account?

Dancer
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Re: add to DW 401k while withdrawing from (self) 403b?

Post by Dancer » Fri Jun 15, 2018 5:55 pm

spammagnet wrote:
Fri Jun 15, 2018 5:39 pm
Twood wrote:
Fri Jun 15, 2018 1:52 pm
One additional factor I can think of is assessing the quality/cost of your funds in your vs her 403b/401k. If you have high expense only options you don't like in yours, and hers is full of great low cost index funds, then you could take this opportunity to "move" the money.
We have good choices in both so doing so adds no value, but how would you propose that we transfer assets from from my deferred account to her deferred account?
Um, what you are talking about doing -- spend from yours, contribute to theirs. Doesn't have to be the exact same dollar :)

lakpr
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Re: add to DW 401k while withdrawing from (self) 403b?

Post by lakpr » Fri Jun 15, 2018 7:15 pm

Twood wrote:
Fri Jun 15, 2018 1:52 pm
One additional factor I can think of is assessing the quality/cost of your funds in your vs her 403b/401k. If you have high expense only options you don't like in yours, and hers is full of great low cost index funds, then you could take this opportunity to "move" the money.
In NJ, contributions to 403(b) plans are taxed but contributions to 401(k) plans aren’t. Not sure which state you are in, but this can be a factor. For someone contributing the maximum yearly amount, this can be reflect an expense/saving about $1500 per year.

gneeby
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Re: add to DW 401k while withdrawing from (self) 403b?

Post by gneeby » Sat Jun 16, 2018 9:40 am

spammagnet wrote:
Thu Jun 14, 2018 10:50 am
All, I'll be retiring in a few months. DW will continue to work and has a good 401k plan. I'm eligible for SS benefits but am not at FRA and will defer benefits until 70, anyway. I don't have any pensions to speak of. ($3K/year starting in a couple years.) We'll need to supplement her income with withdrawals from my deferred accounts, to maintain our standard of living.

Does it make sense for her to contribute to her 401k while I withdraw from my 403b? That seems illogical but there may be advantages, such as helping with Roth conversions. ORP suggests some Roth conversions but doesn't distinguish between spouses as the source of the withdrawal.

Suggestions? Observations?

Thanks
For a married couple filing a joint return it doesn't matter which account, retiree or spouse, is converted, from ORP's modeling perspective. The decision will be based on other, non-model factors.

spammagnet
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Re: add to DW 401k while withdrawing from (self) 403b?

Post by spammagnet » Sat Jun 16, 2018 10:06 am

gneeby wrote:
Sat Jun 16, 2018 9:40 am
For a married couple filing a joint return it doesn't matter which account, retiree or spouse, is converted, from ORP's modeling perspective. The decision will be based on other, non-model factors.
Thanks

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