Huntington Ingalls 401(k): 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.
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.
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.
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.
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.
Keep in mind that the gains from the after-tax dollars will have to be placed in a Traditional IRA to continue to receive tax-deferred growth. Also note that not placing the in-service distribution funds into another retirement account (e.g. Traditional IRA & Roth IRA) could result in the distribution being taxable.
Matching 401(k) Contributions
Huntington Ingalls matches your 401(k) contributions depending on your business unit. There are also various sub-plans with unique matching structures.
Sub-Plan A: 100% of the first 2%, 50% of next 2%, and 25% of the next 4% of contributions
Sub-Plan CC: 100% of the first 2% and 50% of the next 2% of contributions
Sub-Plan D: No company match
Sub-Plan GG: 100% of the first 1% and 50% of the next 2% of contributions
Sub-Plan AMSEC: 45% of tax-deferred contributions, up to a maximum annual match of $2,500 (2020)
Sub-Plan CM: 100% of the first 2% and 50% of the next 2% of tax-deferred contributions
Sub-Plan SN3: 100% of the first 2%, 50% of the next 2%, and 25% of the 4% of tax-deferred contributions
Sub-Plan UPI: 100% of the first 2%, 50% of the next 2%, and 25% of the 4% of tax-deferred contributions
Why Should You Care About a Huntington Ingalls Match?
Your employer match is just about the easiest money you will ever make. Think of the match program as an instant return on your investment. You’ll have very few opportunities outside of 401(k) matching contributions to instantly earn a 100% return! You should take full advantage of any match.
Just like your own contributions, employer contributions earn compound returns over time, which makes a significant difference in your total balance at retirement.
Huntington Ingalls matching contributions vest at the end of three years, so they belong to you as long you have worked there for at least three years when you leave or retire.
The Huntington Ingalls 401(k) has plenty of low-cost index funds available to build a portfolio that helps you meet your retirement goals.
We are huge fans of index funds because they are generally well-diversified, low-cost, and managers of the funds don’t try to time or predict the stock market. Instead, index funds focus on a buy and hold approach to investing. While no investment is guaranteed, we like that Huntington Ingalls provides these cost-effective investment options.
If you aren’t interested in choosing your funds, you also have several target-date funds available.
Your Retirement, Your Way
Your Huntington Ingalls retirement plan provides you with many opportunities to set yourself up for a healthy retirement. But, a secure retirement won't happen on it's own. It's important that you start implementing key strategies early. Be sure you take full advantage of the generous benefits you have available and get advice early.
We’ve helped many employees at Huntington Ingalls prepare for and enjoy retirement.
If you are in your 50s or 60s, contact us and get objective advice on how to integrate your Huntington Ingalls 401(k) plan with your overall retirement plan. We'll help you clarify your goals, provide powerful insights to help achieve them, and partner with you long-term to keep you on track. From growing your wealth, to reducing taxes, to making smart decisions with your money, we can help.
Ready to learn more about how we can help you retire? Schedule a call today!
Mark Fonville, CFP®
Mark has over 18 years of experience helping individuals and families invest and plan for retirement. He is a CERTIFIED FINANCIAL PLANNER™ and President of Covenant Wealth Advisors, and award winning wealth management firm in Richmond and Williamsburg, VA.
Disclosures: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. Covenant Wealth Advisors is not affiliated with Huntington Ingalls.
The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like accounting, tax or legal advice, you should consult with your own accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Information contained in this article were retrieved from sources that are deemed to be reliable.