I hope you enjoy reading this blog post.

If you need help with your retirement planning, click here to see if we're a fit.

  • Mark Fonville, CFP®

Huntington Ingalls 401(k): How to Maximize It

Huntington Ingalls 401k: How to Maximize It

401(k) plans are one of the most popular employer-sponsored retirement plans available. Alongside a reliable means of saving, they also allow for employer matching contributions and introduce a variety of tax-planning strategies.

Download our essential retirement checklist for more helpful tips and considerations to retire with confidence.

For many, a 401(k) plan is the most important tool to build retirement savings and support lifestyle needs in retirement, making it essential to understand your Huntington Ingalls 401(k).

Although there are commonalities among 401(k) plans, each employer has leeway in what they offer.

In this article, we will look at the fundamental elements of the Huntington Ingalls 401(k) plan, and how to take full advantage of the plan features.

What is a 401(k) and How Does it Work?

A 401(k) is a tax-advantaged defined-contribution plan sponsored by your employer to facilitate saving and investing for retirement.

Upon its conception, Internal Revenue Code Section 401(k) was enacted to allow deferral of compensation for stock options and bonuses. By the early 1980s, the plans opened up to salary reductions, and companies started to favor 401(k) plans over traditional pensions. Between cheaper maintenance and less company investment risk, 401(k) plans rapidly replaced their defined-benefit predecessors.

Your contributions to the Huntington Ingalls 401(k) are made by salary reduction, also known as elective deferral, which simply means you direct a portion of your salary to the plan instead of receiving it in your paycheck. Generally speaking, elective deferrals can be made on a pre-tax, after-tax, or Roth basis. It’s up to each plan to decide what they offer, and not all options have to be represented.

The mechanics of elective deferral work in your favor. Since contributions are automatically deducted, you don’t have to actively think about them or plan for it. Investing at regular intervals when you get paid is a healthy practice too because the money is immediately invested in the funds you choose, instead of sitting in cash until you decide to contribute. Over several years, compounding returns have the potential to make a significant difference.

Huntington Ingalls 401(k)

Your Huntington Ingalls plan offers each type of contribution, up to 75% of your compensation. Let’s see how it works.

  1. Pre-tax 401(k) contributions. Contributions are deducted from your current-year income, up to the annual limit. For 2020, that limit is $19,500 plus an additional $6,500 for people 50 and over. Contributions and earnings are taxed at withdrawal.

  2. Roth 401(k) contributions. Same limits as pre-tax contributions, but taxed differently. Roth contributions are not deducted from current-year income, but contributions and earnings are not taxed as they grow and can be withdrawn tax-free upon retirement.

  3. After-tax 401(k) contributions. Not deducted from current-year income. Contributions are withdrawn tax-free, but earnings are taxed at withdrawal. The limit works differently for after-tax contributions and is based on total contributions to the plan from all sources. For 2020, all contributions to the plan cannot exceed $63,500 for people 50 and older.

Because of the contribution choices possible in the Huntington Ingalls plan, you have several ways to save and take advantage of tax-planning opportunities. These strategies aren’t trivial and can make a meaningful difference in the amount of disposable income you have in retirement.

You need to decide how you want to treat your contributions carefully. Consider your current and future tax rates, other sources of retirement income, and how much you can or need to save.

Build Tax Free Income with an In-Service Distribution Rollover

Everyone wants tax-free income in retirement. For many Americans, this can be achieved by contributing to a Roth IRA. Unfortunately, Huntington Ingalls executives and high income earners make too much money to qualify for contributing directly to a Roth IRA.

So, what can you do?

Known loosely as a "Mega Back-door Roth IRA", the Huntington Ingalls 401(k) offers the ability to sidestep Traditional Roth IRA income and contribution limitations.

By taking the after-tax contribution feature one step further, Huntington Ingalls employees who are age 59 1/2 have the ability to complete an in-service distribution rollover from the 401(k) plan into a Roth IRA and Traditional IRA.

The main benefit here is the ability to move the after-tax dollars into a Roth IRA and thus receive tax-free growth. The back-door Roth IRA strategy is available regardless of your income level.