Dalpa R&I Roadshow
09-22-2018, 08:57 AM
#281
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Joined APC: Dec 2007
Posts: 5,598
Let's for arguments sake say we have a 25% DC and all spill over money (DPSP cash) is captured in an MBCBP.
A 5% return on the funds could replace your portfolio's fixed income/dividend low risk allocation. That would free your self directed 401k money to be invested more aggressively. You could still achieve your overall risk target and allocate your plan as you deem appropriate. As we get nearer to retirement risk should be dialed back and those last high end earnings years would result in the MBCBP plan being funded at an increasingly greater amount which is in line with the life cycle philosophy.
Also you could then use your entire personal contribution ($18500 currently) to add funds to the 401k forcing more spill over into a tax advantaged account. There would be no limit on the amount you could put away other than the amount you earn.
In a balanced life cycle portfolio there is really no loss of control over risk management for the entire retirement pool of money. You would still have a Roth option in the 401k which would allow full funding if you choose the Roth route. That's $61,000 presently for those over 50, which seems to be the target demographic (deadzoners etc.)
We all will eventually need to shelter more income and need more retirement money provided by the company. The IRS limits are not designed for high wage earners. This is just another place to put that money. I'm not for or against anything at this point but I see how I could live with this plan. With the last taxed dollar in and first taxed dollar out draw in retirement I could very effectively manage my tax obligation. With my Roth money after retirement used to control my taxes I could maximize the tax advantage of this plan, which would increase the overall value of the tax advantage even at a fixed low 5% return. This would increase the overall tax savings and investment return to something more approximating an S&P indexed fund at 7-10% with less risk.
A 5% return on the funds could replace your portfolio's fixed income/dividend low risk allocation. That would free your self directed 401k money to be invested more aggressively. You could still achieve your overall risk target and allocate your plan as you deem appropriate. As we get nearer to retirement risk should be dialed back and those last high end earnings years would result in the MBCBP plan being funded at an increasingly greater amount which is in line with the life cycle philosophy.
Also you could then use your entire personal contribution ($18500 currently) to add funds to the 401k forcing more spill over into a tax advantaged account. There would be no limit on the amount you could put away other than the amount you earn.
In a balanced life cycle portfolio there is really no loss of control over risk management for the entire retirement pool of money. You would still have a Roth option in the 401k which would allow full funding if you choose the Roth route. That's $61,000 presently for those over 50, which seems to be the target demographic (deadzoners etc.)
We all will eventually need to shelter more income and need more retirement money provided by the company. The IRS limits are not designed for high wage earners. This is just another place to put that money. I'm not for or against anything at this point but I see how I could live with this plan. With the last taxed dollar in and first taxed dollar out draw in retirement I could very effectively manage my tax obligation. With my Roth money after retirement used to control my taxes I could maximize the tax advantage of this plan, which would increase the overall value of the tax advantage even at a fixed low 5% return. This would increase the overall tax savings and investment return to something more approximating an S&P indexed fund at 7-10% with less risk.
09-22-2018, 10:14 AM
#283
Gets Weekends Off
Joined APC: Apr 2007
Posts: 4,614
Let's for arguments sake say we have a 25% DC and all spill over money (DPSP cash) is captured in an MBCBP.
Starting with a higher DC is exactly where our retirement improvements should start. 20% should be the bare minimum.
A 5% return on the funds could replace your portfolio's fixed income/dividend low risk allocation. This is a good point and one that deserves consideration. The closer to retirement you are, the more it has merit. If you are more than 5-10 years out, you will most likely be over indexed in cash.That would free your self directed 401k money to be invested more aggressively. We don't have a self directed 401k, but if that were an option, it would have overwhelming support. Our 401k is nothing more than a brokerage account. A self directed 401K would allow non paper assets like real estate, gold, etc. There is a HUGE difference. You could still achieve your overall risk target and allocate your plan as you deem appropriate. We only achieve targeted asset allocation when we control the split. Forcing DPSP Cash into MBCBP limits the control over percentage of asset allocation into cash. As we get nearer to retirement risk should be dialed back and those last high end earnings years would result in the MBCBP plan being funded at an increasingly greater amount which is in line with the life cycle philosophy. This makes complete sense. In the last 5-10 years, directing funds into a MBCBP fits with sound retirement planning. Directing all DPSP Cash into the MBCBP is not an ideal fit for those with more than 5-10 years left.
Also you could then use your entire personal contribution ($18500 currently) to add funds to the 401k forcing more spill over into a tax advantaged account. There would be no limit on the amount you could put away other than the amount you earn.This is a bit of a misunderstanding of our current plan. There is not an 18,500 limit on personal contributions, only on 401k contributions. You can contribute into the 401a portion of the plan right up to 55K (current 415C limit). An aggressive contribution schedule of 75% into 401a (plus 16% DC) will trigger the 415C limit just above 60K in annual earnings. This produces DPSP Cash for the remainder of the year. Never in the last decade has the R&I Committee explained this feature of the plan. I learned about it from a fellow pilot. It would have helped dramatically in the early years when I stopped personal contributions at the 401k limit. I missed out on six figures of Roth IRA contributions.
In a balanced life cycle portfolio there is really no loss of control over risk management for the entire retirement pool of money. You would still have a Roth option in the 401k which would allow full funding if you choose the Roth route. That's $61,000 presently for those over 50, which seems to be the target demographic (deadzoners etc.)
We all will eventually need to shelter more income and need more retirement money provided by the company. The IRS limits are not designed for high wage earners. This is just another place to put that money. I'm not for or against anything at this point but I see how I could live with this plan. With the last taxed dollar in and first taxed dollar out draw in retirement I could very effectively manage my tax obligation. With my Roth money after retirement used to control my taxes I could maximize the tax advantage of this plan, which would increase the overall value of the tax advantage even at a fixed low 5% return. This would increase the overall tax savings and investment return to something more approximating an S&P indexed fund at 7-10% with less risk.
Starting with a higher DC is exactly where our retirement improvements should start. 20% should be the bare minimum.
A 5% return on the funds could replace your portfolio's fixed income/dividend low risk allocation. This is a good point and one that deserves consideration. The closer to retirement you are, the more it has merit. If you are more than 5-10 years out, you will most likely be over indexed in cash.That would free your self directed 401k money to be invested more aggressively. We don't have a self directed 401k, but if that were an option, it would have overwhelming support. Our 401k is nothing more than a brokerage account. A self directed 401K would allow non paper assets like real estate, gold, etc. There is a HUGE difference. You could still achieve your overall risk target and allocate your plan as you deem appropriate. We only achieve targeted asset allocation when we control the split. Forcing DPSP Cash into MBCBP limits the control over percentage of asset allocation into cash. As we get nearer to retirement risk should be dialed back and those last high end earnings years would result in the MBCBP plan being funded at an increasingly greater amount which is in line with the life cycle philosophy. This makes complete sense. In the last 5-10 years, directing funds into a MBCBP fits with sound retirement planning. Directing all DPSP Cash into the MBCBP is not an ideal fit for those with more than 5-10 years left.
Also you could then use your entire personal contribution ($18500 currently) to add funds to the 401k forcing more spill over into a tax advantaged account. There would be no limit on the amount you could put away other than the amount you earn.This is a bit of a misunderstanding of our current plan. There is not an 18,500 limit on personal contributions, only on 401k contributions. You can contribute into the 401a portion of the plan right up to 55K (current 415C limit). An aggressive contribution schedule of 75% into 401a (plus 16% DC) will trigger the 415C limit just above 60K in annual earnings. This produces DPSP Cash for the remainder of the year. Never in the last decade has the R&I Committee explained this feature of the plan. I learned about it from a fellow pilot. It would have helped dramatically in the early years when I stopped personal contributions at the 401k limit. I missed out on six figures of Roth IRA contributions.
In a balanced life cycle portfolio there is really no loss of control over risk management for the entire retirement pool of money. You would still have a Roth option in the 401k which would allow full funding if you choose the Roth route. That's $61,000 presently for those over 50, which seems to be the target demographic (deadzoners etc.)
We all will eventually need to shelter more income and need more retirement money provided by the company. The IRS limits are not designed for high wage earners. This is just another place to put that money. I'm not for or against anything at this point but I see how I could live with this plan. With the last taxed dollar in and first taxed dollar out draw in retirement I could very effectively manage my tax obligation. With my Roth money after retirement used to control my taxes I could maximize the tax advantage of this plan, which would increase the overall value of the tax advantage even at a fixed low 5% return. This would increase the overall tax savings and investment return to something more approximating an S&P indexed fund at 7-10% with less risk.
What percentage of DPSP cash is being paid out on earnings below 275K?
Why haven't we heard more about the VAP and VBP that was presented in C2019 Contract Preparedness Bulletin 18-06?
09-22-2018, 10:42 AM
#285
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Joined APC: Jul 2010
Posts: 3,371
High income earners like us all ready have far enough tax deferred Retirement money. That's why the Mega Backdoor Roth is so popular. The MBCBP will wipe out that strategy. The Wealthy and High Networth individuals have a majority of their wealth outside of retirement accounts.
All these retirement accounts should be optional. The company already send 16% to the 401k, why do I want another “retirement account” that will make me pay taxes and high fees?
09-22-2018, 11:17 AM
#286
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Joined APC: Apr 2007
Posts: 4,614
High income earners like us all ready have far enough tax deferred Retirement money. That's why the Mega Backdoor Roth is so popular. The MBCBP will wipe out that strategy. The Wealthy and High Networth individuals have a majority of their wealth outside of retirement accounts.
Get professional advice before you try this one!
An option in addition to your Delta plan (55k) and the Back Door Roth IRA (5.5K) may be to establish a SIMPLE IRA plan within your side business. The IRS limits employee elective deferral under 457 plans to 18,500 per year, but (I think) the 401a contributions fall outside of the 457 definition of elective deferrals. 401k contributions are definitely under the elective deferral limits of the 457 plan. If you made all of your employee contributions to the Delta 401a vs Roth 401k, you may qualify for a 12,500 contribution into a SIMPLE IRA from a side business. The SIMPLE IRA can be rolled over into a Roth IRA after two years. Or maybe you have a center business and Delta is a side job, either way, DYODD if you explore this option. I'll be talking to may CPA about this topic next week.
09-22-2018, 12:15 PM
#287
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Joined APC: Sep 2008
Position: Kickin’ Back
Posts: 6,971
I guess I'm not following you..Now I don't make $275k but I get DPSP because of taking advantage of the 401a. I can then take that DPSP and invest elsewhere, whether it be Real Estate or anything else, hell could just blow it on something.
With this new plan, i could still do the 401a thing (I assume) but that excess that I was going to invest elsewhere now goes into something that I don't think is a benefit to me personally because a. i have no control over it and b. the way it was presented the target gains are paltry.
In current world, I get to say where my 16% is going because i've played the game and maxed out IRS limits.
In the new scenario, I don't get to say where my 16% is going because I've maxed out the IRS limits but DALPA has put a policy in place to direct that excess that was previously cash to me.
With this new plan, i could still do the 401a thing (I assume) but that excess that I was going to invest elsewhere now goes into something that I don't think is a benefit to me personally because a. i have no control over it and b. the way it was presented the target gains are paltry.
In current world, I get to say where my 16% is going because i've played the game and maxed out IRS limits.
In the new scenario, I don't get to say where my 16% is going because I've maxed out the IRS limits but DALPA has put a policy in place to direct that excess that was previously cash to me.
Denny
09-22-2018, 12:17 PM
#288
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Joined APC: Sep 2008
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Posts: 6,971
09-22-2018, 02:30 PM
#289
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Joined APC: Mar 2015
Position: stake holder ir.delta.com
Posts: 10,456
I currently don’t do the 401a overfunding because of other investments but my understanding is this has some very particular requirements for those funds eventually becoming Roth IRA funds. I would agree that more education on the usefulness of this provision is necessary. If there is a ligitimate way to get additional tax advantages from our current plan those should be done first. Company funded 415c limits etc.
To clarify my earlier use of the phrase “self directed,” that was a poor word choice. I meant you have the ability to allocate your investments within the plan to target a risk/reward level you are comfortable with. True self directed accounts are not part of this discussion.
We need to remember that the union is looking to shelter these funds for the masses. I have my own investments that work for me. My point is any additional tax savings has real benefits for those who Ronco their retirement accounts (set it and forget it) if the new plans were implemented I’m saying I could adjust and the greater good could be served when the pilots who choose to be pilots and not outside investors are given a benefit that reduces taxes and risk.
To clarify my earlier use of the phrase “self directed,” that was a poor word choice. I meant you have the ability to allocate your investments within the plan to target a risk/reward level you are comfortable with. True self directed accounts are not part of this discussion.
We need to remember that the union is looking to shelter these funds for the masses. I have my own investments that work for me. My point is any additional tax savings has real benefits for those who Ronco their retirement accounts (set it and forget it) if the new plans were implemented I’m saying I could adjust and the greater good could be served when the pilots who choose to be pilots and not outside investors are given a benefit that reduces taxes and risk.
Last edited by notEnuf; 09-22-2018 at 03:03 PM.
09-22-2018, 03:36 PM
#290
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Joined APC: Jul 2010
Posts: 3,371
The only reason you get the excess in DPSP CSH is because it has nowhere else to go after meeting the contribution limit (by either means). My point is you do not have the OPTION to take the 16% as regular pay instead of it going into the 401k. (I know, no one would take this option if available, but that’s not the point) If there is a retirement plan for the money to go into, shouldn’t the money go into it. I mean, it IS a retirement contribution.
Denny
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