401k v. 409A?

bparkhur · July 2015

The company DH works for was recently bought, and that means changes! One of the unfortunate changes appears to be retirement benefits. Whereas his former company paid a 50% match up to 10% in a 401k, his new employer matches 50% up to 6% in a 409A. I have never heard of a 409A until now, and I'm wondering if anyone has experience with them. Based on my googling, it appears that his retirement contributions could be subject to the employers creditors if the company went under for some reason, and that does NOT sit well with me. Looking for information, experience, insight, etc. I've always been of the mind set to "take the free money" but now I'm wondering if that's a great idea in this case. Thanks!

jtmh2012 · July 2015

I just did some light reading on this. I think I'd at least be investigating other options if you have any. I'm not sure how old you are, but the longer you have until retirement, the more wary I think I'd be of these.

bparkhur · July 2015

That was my thinking as well! DH is 34, so retirement is still in the distant future. I really hate to give up the free matching money, but I have zero trust that this (or any, really...) company has the best interests of the employees in mind. I guess I'm trying to decide if the risks outweigh the rewards.

MommyLiberty5013 · July 2015

I haven't heard of this before. Here's my question...could your DH invest in this 409A to get the company match each year, and then transfer a portion of the 409A each year to an outside IRA like at Vanguard, Fidelity, etc.? So he'd open the 409A and a portion of every paycheck would go into it. He'd get the company match. Then, 1x per year, he'd move a bunch of the money out of it to a neutral third party IRA holder. Thus, he could get the match BUT still protect the asset from seizure.

AprilZ81 · July 2015

Is the entire balance subject to seizure or just the company match? I wouldn't participate at all if creditors can get their hands on the whole balance. If it is just the company match (not the earnings or employee contributions) it is less risky but still not the best option.

bparkhur · July 2015

That's a really good question, MommyLiberty...I'm going to explore that!

April--it's ALL of the contributions, from what I understand. Basically you take a tax break now by getting into a lower bracket (instead of the IRS seeing you made 100,000 for example, you could be in the tax bracket for 80,0000 if you contributed 20,000 to the account. There's no 17,000 max...you could actually put in 100% of your income if you choose! That money, however, is not technically dispersed to you though; it's held by the company as a deferred, "promised" payment. The problem is if the company folds; then, you have to get in line with all the other creditors to try and get your money.

While it seems like there could be some great upsides, I just can't fathom "hoping" to get all that invested money! I feel like there has to be something I'm missing.

AprilZ81 · July 2015

bparkhur said:

That's a really good question, MommyLiberty...I'm going to explore that!
April--it's ALL of the contributions, from what I understand. Basically you take a tax break now by getting into a lower bracket (instead of the IRS seeing you made 100,000 for example, you could be in the tax bracket for 80,0000 if you contributed 20,000 to the account. There's no 17,000 max...you could actually put in 100% of your income if you choose! That money, however, is not technically dispersed to you though; it's held by the company as a deferred, "promised" payment. The problem is if the company folds; then, you have to get in line with all the other creditors to try and get your money.
While it seems like there could be some great upsides, I just can't fathom "hoping" to get all that invested money! I feel like there has to be something I'm missing.

If they can't guarantee that employee contributions are 100% safe I wouldn't risk it unless you can do what @MommyLiberty5013 suggests and transferring it to a different retirement account that you guys control.

short+sassy · July 2015

Huh. I've never heard of a 409A either. Learn something new every day. I can't help but think there is a reason it is not the popular choice for retirement.

I agree with @MommyLiberty5013 also. Unless you can pull the money out and move it to a different investment vehicle, ie 401K, every quarter or so, it just sounds too risky. Even if his employer seems like a good, reliable company with a solid foundation...how many times have we seen companies just like that take a fall?

JoanE2012 · July 2015

bparkhur said:

That's a really good question, MommyLiberty...I'm going to explore that!
April--it's ALL of the contributions, from what I understand. Basically you take a tax break now by getting into a lower bracket (instead of the IRS seeing you made 100,000 for example, you could be in the tax bracket for 80,0000 if you contributed 20,000 to the account. There's no 17,000 max...you could actually put in 100% of your income if you choose! That money, however, is not technically dispersed to you though; it's held by the company as a deferred, "promised" payment. The problem is if the company folds; then, you have to get in line with all the other creditors to try and get your money.
While it seems like there could be some great upsides, I just can't fathom "hoping" to get all that invested money! I feel like there has to be something I'm missing.

Oh heck no. I would not participate - I'd find a different vehicle for saving for retirement.

blondie42107 · July 2015

I've never heard of it either. I think I'd rather invest without a company match than risk losing it all.

CuriousKiddosMama · July 2015

I don't know enough about it, but that seems really risky. I wouldn't feel comfortable putting our $ into something like that without seeking advice of somebody who does this every day.

brij2006 · July 2015

I would wonder if it's their version of some sort of pension?

jtmh2012 · July 2015

brij2006 said:

I would wonder if it's their version of some sort of pension?

From what I can tell these seem to be mainly intended for "highly compensated employees" who want to spread their income out. 401k's also require the company to offer it to all those who are eligible, this seems to be a way to skirt that requirement.

I'd like to see what @hoffse has to say about them.....

AprilZ81 · July 2015

I think @hoffse is on vacation right now so it might be awhile before she sees this.

short+sassy · July 2015

AprilZ81 said:

I think @hoffse is on vacation right now so it might be awhile before she sees this.

Oh yeah! I forgot she was going to France. I'd noticed she hadn't been on the boards for a few days, but hadn't connected the dots.

jtmh2012 · July 2015

short+sassy said:

AprilZ81 said:

I think @hoffse is on vacation right now so it might be awhile before she sees this.

Oh yeah! I forgot she was going to France. I'd noticed she hadn't been on the boards for a few days, but hadn't connected the dots.

I knew she was going to France, just didn't realize it was now. Guess we'll see when she comes back....:)

401k v. 409A?

Re: 401k v. 409A?

Choose Another Board

Search Boards