Question(s) regarding Fidelity and company match

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MilknCheerios

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I'm a bit inexperienced with how a retirement account on fidelity works, and I apologize in advance if this post is newbie (we gotta start somewhere right?). I work for a large retail chain and had been contributing 4% per paycheck in "before-tax" dollars just to get the company match since employment.

I've been researching that Roth retirement accounts are good too because when you do withdraw, they are not taxed. So, I decided to contribute a few % towards a "Roth" on Fidelity. On my next paycheck, I check to see that the company match is still 4% in "before-tax" dollars and a smaller amount is added to "Roth."

So, my question is when I do withdraw in retirement, how does the retirement account know which is which because it all appears to be one lump sum? Secondly, does the company match only apply to "before-tax" contributions then?

Edit: Top Question answered. Added another question Post #14

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Are you sure you aren't adding a voluntary contribution toward your 401k? That is a option as well. Roth usually refers to an IRA which isn't connected to your job.
Perhaps it would be easier to see what I am trying trying to say. I selected to contribute via "Roth (let's pretend 5%):"
snapshot2.png



And when Fidelity shows how much total I contributed for that paycheck, it looks like this:
snapshot1.png


But the retirement account balance doesn't separate the amounts in "before-tax" or "Roth;" it's just one total amount. So, when it comes finally time to withdraw, will Fidelity know which is the "Roth" contribution (or am I just confused)? Thanks in advance whoever can clear this up for me.
 
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Can you take anotjer look of your Fidelity account contribution history or details? I am guessing your employer sponsored plan with Fidelity should separate into two pools of contributions when you go into account details instead of total balance - i.e. '401k traditional' + '401k Roth.' Otherwise something is weird here, considering the different rules and tax implications.

Your screenshot shows your total holdings of a particular share. Perhaps your plan's holdings page is set this way but there's another place that reflects the different total contributions? Kind of odd it is set up that way though.
 
Before-tax and Roth contributions are definitely tracked separately, because on withdrawal, before-tax and the match gets taxed, but Roth is tax-free. There should be three pie charts further down for Asset Classes, Holdings and Sources. Sources will separate them out.

They will match the first 4% of either before-tax or Roth contributions so it doesn't matter. The match itself is always pre-tax, so you have to pay taxes on it on withdrawal.

I usually don't recommend the Roth 401k because the tax advantages aren't as good as pre-tax. Also, you can do an additional $6000/yr in a backdoor Roth IRA with your choice of broker, and you can invest in anything you want like index funds or individual stocks, so this is better than a Roth 401k. 401k pre-tax and Roth contributions have a combined limit of $19,500/yr and you can only invest in the funds that the company chooses. So I recommend doing pre-tax 401k first, until you max it out at $19,500, then backdoor Roth $6k.
 
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@pezdispenser

I think I found what you were referring to:
snapshot3.png

When I select show details, it tells me how much is in there. I guess I needed to poke around Fidelity more. If I'm understanding correctly then, you would:
1) set the Roth contribution back to 0%
2) re-calculate the contribution for the pre-tax/Roth to hit $19,500
3) deposit 6k into a separate Roth IRA at the end of the year and invest that into an index fund like VTSAX

@disgonbgud The shares refer to "Target Retire 2050" which is supposed to get me to some goal but I don't know if there is anyway to change or improve my returns. I would rather have more control of what the money is invested in.
 
@disgonbgud The shares refer to "Target Retire 2050" which is supposed to get me to some goal but I don't know if there is anyway to change or improve my returns. I would rather have more control of what the money is invested in.
I say this with respect as someone who is genuinely trying to help out a fellow pharmacist. Do not play around with your retirement account. The target date fund is honestly a little too conservative for my taste with overexposure to bonds BUT it will do its job. Just contribute and let it run in the background making you money and setting you up for a wonderful retirement. The vast majority of investors will not outperform an index fund over their lifetime and it is not a good idea to gamble with your retirement.

Have an after-tax account for speculating and have a boring target-date fund for retirement. :)
 
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@pezdispenser

I think I found what you were referring to:
View attachment 330386
When I select show details, it tells me how much is in there. I guess I needed to poke around Fidelity more. If I'm understanding correctly then, you would:
1) set the Roth contribution back to 0%
2) re-calculate the contribution for the pre-tax/Roth to hit $19,500
3) deposit 6k into a separate Roth IRA at the end of the year and invest that into an index fund like VTSAX

@disgonbgud The shares refer to "Target Retire 2050" which is supposed to get me to some goal but I don't know if there is anyway to change or improve my returns. I would rather have more control of what the money is invested in.
I understand what the fund refers to. You can look at what the specific holdings are in the target fund (it will specify % stocks vs bonds and -edit- typically which holdings make up the largest chunks, as well as other financials like historical performance).

I agree with owlegrad as far as this: as a new investor you do NOT want to try to beat the market before you understand what you are doing, especially with retirement money. You will almost certainly lose out trying to time the market.

However, you can look at the expense ratio (like a maintenance fee)for your target fund and find lower cost index funds that approximate the amount of stocks vs bonds you wish to hold. You can go further into reading about allocating to large cap, small cap, international market, etc. If you are willing to accept more risk for potentially higher returns, consider putting a greater % of your contributions into a(or multiple) stock market index funds and a lesser amount into a bond index.

Also, if you haven't already, go back and read over the plan summary carefully.
 
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@pezdispenser
When I select show details, it tells me how much is in there. I guess I needed to poke around Fidelity more. If I'm understanding correctly then, you would:
1) set the Roth contribution back to 0%
2) re-calculate the contribution for the pre-tax/Roth to hit $19,500
3) deposit 6k into a separate Roth IRA at the end of the year and invest that into an index fund like VTSAX

@disgonbgud The shares refer to "Target Retire 2050" which is supposed to get me to some goal but I don't know if there is anyway to change or improve my returns. I would rather have more control of what the money is invested in.
Yes. 2) should be pre-tax contributions only, and it usually works out to around 15% to hit $19,500.

For 3) there's an income limit to make direct contributions to a Roth IRA of $198k married/$125k single, but to get around this you just have to do the 'backdoor Roth' method. Basically you contribute $6k to a traditional IRA first and declare it on your tax return Form 8606 as a non-deductible contribution. Then you convert it the next day to a Roth IRA. You only pay taxes on any interest for that one day, which should round down to 0. So the end result is the same as the direct Roth IRA, and any investment gains from that point on are tax free.

I actually do my backdoor Roth at the beginning of the year to give my money more time in the market making investment returns. VTSAX is fine to start off with, and when you learn more you could start taking on more risk for better returns such as in individual stocks. A Roth IRA is great for trading because you don't have to track or declare any trades because it's tax free.

There's also another thing called the 'Mega Backdoor Roth' which is where you make after-tax contributions (these are different from Roth contributions) to your 401k as shown at the bottom of your screenshot:

These have a much higher limit of $58k minus any pre-tax or Roth contributions (19.5k) and any match (~5k), so around $33k. You can then rollover your after-tax money to a Roth IRA up to 4 times a year. You pay taxes on any gains up to that point, but any gains after are tax free. However, there is an income limit to do the mega backdoor Roth. You can't be a 'Highly Compensated Employee' which can vary by company, but is usually $130k.

Target Retire 2050 is ok if you just want to set it and forget about it, or if you don't know anything about asset allocation. If you do delve into asset allocation, it's 41% US stock, 37% international stock, 22% bonds/other. I don't like bonds or internationals so I do 60% large company stock index, 20% small/medium company stock index, 20% international stock index.
 
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Also don't forget that 6K is the limit for MAGI up to $125K for 2021, otherwise you will have to roll it over to avoid paying penalty.
 
Before-tax and Roth contributions are definitely tracked separately, because on withdrawal, before-tax and the match gets taxed, but Roth is tax-free. There should be three pie charts further down for Asset Classes, Holdings and Sources. Sources will separate them out.

They will match the first 4% of either before-tax or Roth contributions so it doesn't matter. The match itself is always pre-tax, so you have to pay taxes on it on withdrawal.

I usually don't recommend the Roth 401k because the tax advantages aren't as good as pre-tax. Also, you can do an additional $6000/yr in a backdoor Roth IRA with your choice of broker, and you can invest in anything you want like index funds or individual stocks, so this is better than a Roth 401k. 401k pre-tax and Roth contributions have a combined limit of $19,500/yr and you can only invest in the funds that the company chooses. So I recommend doing pre-tax 401k first, until you max it out at $19,500, then backdoor Roth $6k.
I mostly agree with this, but if one is already maxing out a regular Roth, an HSA, and a 401k (or 403b as it may be), and maybe some extra accounts, it seems reasonable to change contributions to the Roth 401k/403b instead of regular just to give yourself some more savings space. Sure, you pay taxes on it now....but rolling that pre-tax 401k/403b later will be expensive for taxes later anyway if you're doing it right.
 
I mostly agree with this, but if one is already maxing out a regular Roth, an HSA, and a 401k (or 403b as it may be), and maybe some extra accounts, it seems reasonable to change contributions to the Roth 401k/403b instead of regular just to give yourself some more savings space. Sure, you pay taxes on it now....but rolling that pre-tax 401k/403b later will be expensive for taxes later anyway if you're doing it right.
I'm doing $33k Mega backdoor Roth + $6k regular backdoor Roth IRA so I have plenty of Roth space already.

If you retire early, you'll have many years to convert a pre-tax 401k to a Roth and spread it out so that you pay taxes in the lower tax brackets/standard deduction. You can then withdraw those conversions after 5 years, even if you're under 59.5 yrs with no tax or penalty. This is known as the 'Roth conversion ladder'.
 
I'm doing $33k Mega backdoor Roth + $6k regular backdoor Roth IRA so I have plenty of Roth space already.

If you retire early, you'll have many years to convert a pre-tax 401k to a Roth and spread it out so that you pay taxes in the lower tax brackets/standard deduction. You can then withdraw those conversions after 5 years, even if you're under 59.5 yrs with no tax or penalty. This is known as the 'Roth conversion ladder'.
If you have the backdoor option, that's good...it's not available at my work, unfortunately. We do get a 457b (which I participate in, but think it's probably an unwise choice). My family unit gets to do regular Roth IRAs, which is a bit nice! A little less convoluted than the backdoor option. But obviously we make less money than people doing backdoor.

My personal plan is to work until dropping dead or forced to quit rather than retiring early, but I am a bit of a compulsive saver. Wish we had in-service rollover options.
 
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I just wanted to say thanks to everyone that commented in this thread. I am still monitoring it and researching on my own as well. I have another question though.

I'm trying to put $6000 into my Roth IRA to meet the maximum contribution for 2020. I transferred $6000 from my bank account on 2/19/21 and it appeared in my Fidelity investment account on 2/22/21. However, as of this post, it still shows my money available to withdraw as ~$800 (this was from experimenting with trading in general). Does the $6000 in the investment account take some time to settle before I can move it into my Roth IRA or did I mess something up?

delete1025.png
 
I just wanted to say thanks to everyone that commented in this thread. I am still monitoring it and researching on my own as well. I have another question though.

I'm trying to put $6000 into my Roth IRA to meet the maximum contribution for 2020. I transferred $6000 from my bank account on 2/19/21 and it appeared in my Fidelity investment account on 2/22/21. However, as of this post, it still shows my money available to withdraw as ~$800 (this was from experimenting with trading in general). Does the $6000 in the investment account take some time to settle before I can move it into my Roth IRA or did I mess something up?

View attachment 331199
If it's already in your Roth IRA, then it shouldn't matter because you aren't going to withdraw it anyway. Usually they let you buy stocks, ETFs or mutual funds as soon as it shows up (I know Vanguard lets you, but not sure about Fidelity).

But if it's in a taxable investment account and you still have to transfer it to a Roth IRA, then they may or may not make you wait until the funds have cleared and it shows as available to withdraw. Just try to transfer it to a Roth and see.
 
@pezdispenser Yes, I was able to transfer the funds to the Roth IRA on Friday. Just had to wait a day or two extra
 
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