Intel’s 401(k) Retirement
Intel’s 401(k): The Basics
The Intel 401(k) is a retirement savings plan that allows employees to invest a portion of their salary into long-term investments and save for their retirement. Your contribution and the 5% salary match provided by Intel are 100% vested from day one with the company.
The 401(k) plan allows you to make pre-tax contributions, reducing your annual taxable income. Your 401(k) earnings grow on a tax-deferred basis, meaning the dividends and capital gains accumulating within your plan are not subject to tax until they are withdrawn at retirement, when many people are in a lower tax bracket.
Intel’s 401(k) Contribution Matching System
In 2022 you can contribute up $20,500 on a pre-tax or Roth basis into your 401(k), and if you’re age 50 or older, you can contribute an additional $6,500. Additionally, Intel will match up to 5% of your salary. For example, if you make $200,000, Intel will contribute $10,000 (pre-tax) to your 401(k), assuming you also contribute at least $10,000.
There are two ways that employees can contribute to their regular 401(k):
Traditional Pre-Tax 401(k): Make contributions before taxes. You get a tax break up front, lowering your current income tax bill; however, money withdrawn at retirement will be taxed.
Roth 401(k): Make contributions after taxes. With this option, when you withdraw savings for retirement, you are not taxed.
Intel’s Mega Backdoor Roth 401(k) Benefit
Intel offers employees an After-Tax Roth conversion feature in the Intel 401(k), also known as the Mega Backdoor Roth. This is a fantastic benefit that Intel employees ought to be leveraging along with your other benefits, like the Intel stock purchase plan, RSUs, and SERPLUS.
To illustrate the advantage of the Mega Backdoor Roth, we will use a hypothetical example of an Intel employee, who is under 50 and earning $150,000 per year. This employee is contributing the maximum amount to their 401(k), $20,500 and qualifies for Intel’s 5% match which adds another $7,500 to their 401(k). The end result is an annual contribution of $27,500 to their 401(k).
Many people do not know that there is an annual Federal limit for total dollars going into a 401(k). In 2022, the limit is $61,000 for individuals under 50 and $67,500 for individuals 50 and over. For our example employee, this means they can contribute an additional $33,500 to their 401(k) and immediately convert those after-tax dollars to Roth.
Are There Tax Benefits Associated with Mega Backdoor Roth?
If you have been saving money above and beyond your 401(k), more than likely you’re saving into a brokerage account (individual account, joint account, etc.). Within these accounts you hold investments, which inevitably over time kick off interest income, dividends, and capital gains. All of these events are taxable within brokerage accounts and over the long-run, this taxation can create a substantial tax drag on performance.
Within a Roth you could hold the exact same investments, but the same interest income, dividends, and capital gains would all be tax-free now and when you retire!
How Can I Determine if the Mega Backdoor Roth Benefit is Best for Me?
If you are currently maxing out your annual 401(k) contribution, you should consider taking advantage of the Mega Backdoor Roth benefit at Intel. The long-term benefits of increasing your retirement savings, particularly by utilizing the Intel Mega Backdoor Roth Conversion strategy, could make a massive positive impact on what your retirement looks like.
MORE INTEL INSIGHTS
For more information and advice from our Intel-focused advisors visit our other pages focused on Intel Compensation and Miscellaneous Benefits page, Intel SERPLUS, or Intel 401(k) & Retirement page.
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