Barbitana

Hi guys,
I am getting a job in the US but it seems that retirement process is quite different in the US than what we have in Australia. Here we have "included" and "excluded" options to be offered by the employer that basically means they may pay 9% of your base salary on your behalf to your fund OR you authorize them to reduce your base by 9% and deposit the money into your fund account. How does it work in the US? do you have any "default setting" ? I mean when it's said your salary is going to be say 150K does it mean 150 + 401K or what?

Cheers,

Michael

In the US, your salary is the amount they quote. You are allowed to contribute up to a certain percent of your wages (limited to a certain percent above the average percent contributed by all employees) which is deducted from your income before taxes (401k contribution are not taxed until distributed). The employer may also contribute a matching amount up to a a certain percent as determined by the employer.

Example:

Salary: $150k
Maximum Contribution Allowed: 10%
Your elected contribution: 10% or $15k
Company contribution: 100% matching up to 5% or $7,500
Salary to be taxed: $135k

dunroving

Any self-respecting US employer should make it clear for you what the "benefits package" is that goes with the salary.

This could include very important benefits package elements such as employer 401k contribution (examples might be "we'll match your contributions up to 5%", "Employer will contribute 10% to a 401k", etc.), health/dental/optical insurance (very important! Do a Search and you'll see why), preferential rates on life insurance, Employee Assistance Program, annual holiday entitlement, and a host of others I haven't thought of.

Barbitana

Thanks everybody,

Does it mean the "employer's contribution" is kinda mandatory?

Cheers,

dunroving

I don't think there is any legal requirement for employers to contribute to an employee's retirement/pension fund (someone else might correct me on that, though) ... but regardless, it happens commonly enough that I think it is perfectly reasonable to ask whether there is an employer contribution to a 401k plan and if so what are the details.

dunroving

I don't know how big the company is, but I would assume that a reasonable sized company would have a ready-made brochure they could email you, or page on their HR Web site that lists the benefits package for employees.

UrsTX

No they are not mandatory. Many private companies do contribute and often they will contribute a matching amount up to a certain percentage of your income. There's also a limit on the amount that you can choose to deposit each year. Some employers don't match at all - mine doesn't. My husband's matches up to 4%. It's silly not to deposit at least enough to claim the match - because it's really free money to you.

Good luck!

aceastwood

The limit of a percentage of your wages is set by the employer and can vary hugely. My company has a 75% limit. However, there is a hard and fast dollar limit set by the government. This is $16,500 ($22,000 for people 50 and older).

The limit with respect to average contribution applies only to highly-compensated employees - those earning above a certain threshold, currently $110k. And there are also restrictions on Key employees - basically, owners of the company.

aceastwood

Some companies also have a profit share component in which a percentage of your salary is paid into the 401(k) plan based on company profitability. This percentage is additional, i.e. it does not come out of your salary - it is just like a bonus that goes into the plan.

Every employee gets the same percentage.

The profit share is addditional to whatever matching contributions the company may make.

Rete

Maybe ... definitely not always. I have yet to work for a firm that matches or makes contributions to your 401K plan and/or have a pension plan that they fund.

Duncan Roberts

Completely opposite. You will probably find more companies don't contribute than do or contribute a token amount rather than a useful amount. For instance the last company I worked for matched 0.5% for every 1% I put in up to a max of 2% (I had to contribute at least 4%) and the one I work for now did contribute 0.25% for every 1% I put in up to 1.25% (I had to contribute at least 5%). Pretty much you are on your own regarding retirement here since companies get hosed with medical insurance premiums.

Mallory

I think the AU superannunation 9% that the OP is talking about is like social security. It's mandatory for your old age pension.

In the US we pay mandatory social security (for our old age pension). The 401K is a nonmandatory supplemental retirement plan that you may choose to get through your employer. So at retirement you would have social security (old age pension), and your 401K, which you may start withdrawing from at age 59-1/2.

dunroving

I wonder how many people would be able to live on what their 401k would be worth at age 59 and a half? I reckon I'll be working until I'm at least 70, and after that I'll probably have to sell my body to make ends meet.

Michael

No. Social security is mandatory at 6.2% of your salary on the first $106,800 your salary if you work for an employer (employer also matches that amount) or 12.4% if you are self employed.

Check the tax treaties between Australia and the US. You may be able to not pay that amount to the US government but instead contribute to the Australia retirement government plan for several years if you don't plan on staying in the US for very long.

md95065

That is true, but only if it makes sense for you to be contributing to a 401K plan in the first place.

The advantage of a 401K plan is that it is a tax-deferred plan where you invest pre-tax dollars and where your investment income is also not immediately taxed.

The disadvantage - especially if you are only planning on being in the US for a few years - is that there is a 10% penalty for early withdrawals from the plan (plus, of course, income tax) so that, effectively your money will be stuck in the US until you reach retirement age.