3 Steps to Make the Most of Your Google 401K Match
Top 3 steps to maximize your Google 401(k)!
1. Take advantage of your match
2. Maximize as much deferral as you can (max it out!)
Transcript:
Hey everyone, this is Nathan Donohue with Consilio Wealth Advisors and today I'll be bringing you the three steps to make the most of your Google 401k match.
The first step is to take advantage of matched funds. So, Google has a very generous employer match on your 401k contributions. Currently, they will match 50% of your contributions all the way up to the IRS limit, which for 2023 is $22,500. So, what this means is that for every dollar that you contribute to the 401k, Google will contribute 50 cents.
It's a phenomenal return. It's a guaranteed contribution from your employer. It's one of the best deals that you can possibly get. So, for all of our clients, when we're talking to them, if their cashflow permits, strongly encourage them to take maximum advantage of this employer match because it is a great contribution from Google.
The second step would be to maximize as much of the deferrals as you possibly can. So this, again, for 2023 is $22,500. That is the maximum deferral that you can make. Deferral is another way of saying; this is an elective income deferral. I'm deferring a portion of my income into the 401k plan. And with Google's 401k plan, you have two contribution options.
You can make your contributions on a pre-tax basis, which means you say, hey, I want to take a certain portion of my income. And before I receive it and pay income taxes, I actually want to defer it, put it into the 401k on a pre-tax basis. The benefit being that helps to reduce my taxable income today, gets money into the 401k, continues to grow on a tax deferred basis. And then whenever you start taking distributions in retirement, you'll pay ordinary income tax rates at that point in time. So that is a pre -tax deferral option.
You also have a Roth deferral option, which is just the taxes are in reverse. So, what that means is I'm going to receive my compensation from Google today. I'll pay taxes today. And then I'll make my contributions into the Roth 401k. Contributions grow on a tax deferred basis. However, when I get out to retirement, both my contributions as well as all the accumulation, all the gains, all the dividends, all the interest that I've earned along the way is all tax-free at that point in time.
So, depending upon your tax situation, it might be more advantageous to do pre-tax, might be more advantageous to do Roth. Strongly encourage you to work with your advisor, your tax advisor to see which one is the best fit for you. However, we do strongly encourage again, provided it works from a cashflow perspective, we encourage our clients to take full advantage of this tax benefit through the Google 401k plan.
The third benefit is to maximize the after-tax contributions or what's sometimes dubbed as the mega backdoor Roth. So, as I mentioned earlier, the normal IRS deferral limit for 2023 is $22,500. But you don't have to stop there. You can make contributions above this threshold. The IRS has a hard stop on total contributions. These are your deferrals, employer matches, and third, any after-tax contributions, which is the strategy we're talking about right now. They have a hard stop at $66,000 for 2023.
So, what this means is that if somebody is maximizing their normal income deferral, which is the $22,500. Google is matching 50 cents on every dollar. So that's an additional 11,250. That means on top of that, you can still contribute an additional $32,250 to the after -tax portion of the 401k. So, this is a great benefit. This allows people to maximize their normal income deferral, get the really rich Google employer match and still have an additional $32,250 that they can contribute to this after-tax component.
So, for folks that are really strong savers that wanted to maximize every possible tax benefit that they can possibly find, this is a really great strategy to take advantage of. One very important detail to note. with this option is that when you do go in to make your contributions and you're making your after-tax contributions, at the bottom of the contribution screen, there's going to be a drop-down, a little button that will ask you, do you want to automatically convert your after-tax contributions to Roth? It's extremely important that you elect yes. The difference between these is that if you do not elect for this, all of your after -tax contributions will go into the 401k, they'll grow on a tax -deferred basis. However, when you get to retirement, you're going to have to pay ordinary income taxes on all the gains that you've accumulated along the way.
If, however, you make this election to have the plan automatically convert the after-tax to Roth, you get the same tax-deferred accumulation. However, when you get to retirement, completely tax-free. You don't have to pay any taxes on the gains, the dividends, the interest that you've accumulated along the journey. So, it's extremely important to check that box to have the plan automatically convert your after-tax contributions over to Roth.
I hope you found this helpful. This has been your three steps to maximize your Google 401k match. Please like and subscribe. We've got a lot more content like this coming for tech professionals that want to maximize their employer benefits. Appreciate your time very much. Thank you.
