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Databricks 401(k) PlanAfter-tax Contribution FeaturePresented By: SageView Advisory GroupEric WeissmanFinancial Wellness Consultanteweissman@sageviewadvisory.com(650) 446-3790
SageView Advisory Group 100 BillionAssets UnderAdvisement130 Employees1,250 Retirement PlansAtlanta, GAAustin, TXBoston, MAChicago, ILDallas, TXMinneapolis, MNNashville, TNOmaha, NEOrinda, CAPasadena, CADenver, COHonolulu, HIHouston, TXIrvine, CAKansas City, MOPhoenix, AZPortland, ORRichmond, VASan Francisco, CAWashington, DCKnoxville, TNLos Angeles, CAMilwaukee, WIWest Hartford, CTWest Palm Beach, FL25Office Locations16-MemberInvestmentCommittee2
What We Will Cover TodayIWhat is the After-tax contribution feature?IIUsing After-tax to fund your Roth 401(k) account.IIIQuestions & Answers!3
IRS Retirement Plan Contribution Limits (2021)Maximum combined Employer (pretax)and Employee After-tax contribution.IRS annual limit for retirementplans contributions, includingage-based catch-up contribution.Note: The Databricks 401(k) Plan limits After-taxcontributions to 20,000 annually. 64,500TotalIRS annual limit onEmployee deferrals toPretax and/or Roth.Age-based EmployeeCatch-up contributionto Pretax and/or Roth.4
Traditional (Pre-tax) Savings vs. Roth (Post-tax)Traditional 401(k)Roth 401(k)ü Contributions go into your account before taxesü Contributions go into your account after taxesü Earnings grow tax-free while the money is in your accountü Earnings grow tax-free while the money is in your accountü Income taxes are paid when you take your money outü No income tax is owed when you take your money outü Transferrable to other pre-tax retirement accountsü Transferrable to other Roth retirement accountsü Subject to Required Minimum Distribution (RMD) at age 72ü You can avoid the Required Minimum Distribution bytransferring your balance to a Roth IRA.Use the tax savings to increase your contributions and get ajump start on your retirement goals Take advantage of your lower tax rate today to avoid payingmore taxes in retirement 5
Roth vs. After-tax ContributionsRoth 401(k)After-tax 401(k)ü Contributions go into your account after taxesü Contributions go into your account after taxesü Contributions are deposited into the Roth accountü Contributions are deposited into Pre-tax accountü Earnings grow tax-free while the money is in your accountü Earnings grow tax-free while the money is in your accountü No income tax is owed when you take your money outü Income taxes are owed on all earnings; no income tax isowed on the original contributions (Cost Basis)ü Transferrable to other Roth retirement accountsü Transferrable to other retirement accountsü You can avoid the Required Minimum Distribution bytransferring your balance to a Roth IRA.ü Subject to Required Minimum Distribution at age 726
In-Plan Roth Conversion (a.k.a. “Mega Backdoor Roth”)After-tax salary deferralinto Pre-tax retirementaccount.No tax deduction onAfter-tax contributionsto Pre-tax account.Earnings/growth on theAfter-tax contributionsare tax-deferred.Earnings taxable upondistribution.Originalcontributions are taxfree. Taxes on earningsassessed pro rata.AlternateTax StrategyIn-plan Roth Conversion.Taxes owed only on anygrowth on the after-taxcontributions.Earnings/growth on anyamount converted toRoth are tax-deferred.Distributions from Rothretirement accounts aregenerally tax-free.7
Example of After-tax Roth Conversion2021 Plan Year Contributions: 39,500 Employee Pre-tax Contribution: 19,500 After-tax Contribution: 20,000Taxable Basis: 19,500Tax-free Basis: 20,000Account Value in 2041:(hypothetical 7% annualized RoR)*SageView 152,853Distribution in 2041Without RothConversionUtilizing In-PlanRoth ConversionTaxable Amount: 132,853 75,459Tax-free Amount: 20,000 77,394Taxes Owed:- 33,213- 18,865(hypothetical 25% effective tax rate)Income After Taxes:Net Additional Income: 119,640vs. 133,988 14,348Advisory Group does not provide tax, legal, or accounting advice. This material is for informational purposes only. All returns are hypothetical.8
How to Enroll1Log onto the FidelityNetBenefits website &select “Contributions.”3Call Fidelity to setupautomated Roth inplan conversions:(800) 835-50972Enter your After-taxsavings amount as apercentage of salary.After-tax contributions canbe automatically convertedto Roth (typically aftereach pay period).(Maximum is 75%)9
Considerations for Making After-tax ContributionsAfter-tax 401(k)You are contributing the annual maximum to your pre-tax or Roth 401(k) accountand you want to have additional Roth assets.You are behind on your retirement savings relative to your age and you want tocatch up to your savings target.You have sufficient short-term liquidity (i.e. an emergency savings account) andyou do not expect to need access to the money until retirement age.You are currently in a high tax bracket and want to maximize your tax deductions,but you also want access to tax-free income in retirement (or you want an accountthat is exempt from RMDs).*SageViewAdvisory Group does not provide tax, legal, or accounting advice. This material is for informational purposes only. Consult with your own tax professional.10
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Thank you for joining thepresentation today!Please contact mewith any questions.Eric WeissmanFinancial Wellness Consultanteweissman@sageviewadvisory.com(650) 446-3790
Denver, CO Honolulu, HI Houston, TX Irvine, CA Kansas City, MO Knoxville, TN Los Angeles, CA . IRS Retirement Plan Contribution Limits (2021) Age-based Employee Catch-upcontribution . 2021 Plan Year Contributions: 39,500 Employee Pre-tax Contribution: 19,500 After-tax Contribution: 20,000 Taxable Basis: 19,500 .
