Bonus
How bonus has to be calculated? My company is paying 15% bonus to me. But they gave me bonus on amount after 401K deduction. So for example my pay is 150K, so instead of getting 22500$ which is 15% of 150K, I got only $19800 which is 15% of (150-18=132K). 18K is 401K investment which I paid and not company. So I lost 15% bonus on amount i invested in 401K. Shouldn’t a company pay bonus on base salary and not on the amount you get after 401K deduction? Before I contact HR, I though to find what is industry norm. Thanks
Following
Are you sure your typical 401k deduction wasn’t taken out of your bonus check and are you looking at the full sum of the bonus before taxes came out (taxes on a bonus are calculated differently than regular pay)? Both of those can influence the amount hitting your bank account. Check the pay stub. If they’re doing it like you said though, that’s strange and feels like a ripoff, but as a company they set the policy on how bonuses are calculated. The only thing you can do at this point is to understand their policy and see if a mistake has been made.
I contacted them, let’s see what reply I get.
Likely that amount was deducted to yo ur 401k. My previous employer did that: all deductions like 401k, esp were taken and rest deposited to my account. I was happy since I get more because of esp
Look at your 401k plan doc, but it is likely that bonuses are part of the eligible comp that can be contributed to a 401k. If that is the case, than the 401k gets first rights on your bonus since the contribution is taken out pre-tax. This is actually very normal. If you didn’t want your bonus to go to 401k, you would have needed to set your 401k contribution to zero before receiving the bonus.
Then you shouldn't do 401k, do Roth IRA instead
Max contribution to a Roth IRA is $5,500 annually and if you work in tech you can probably afford to save a lot more. Max self contribution (not including employer match) for a 401k is $18,500. Under normal circumstances, a Roth is useful, but the higher contribution limit and the fact that contributing to a 401k can reduce your taxable income make the 401k more important to use and ensure you’re going to max out before also putting money into a Roth IRA. In OP’s situation if they are really penalizing his bonus for contributing to his 401k then there is some sort of breakeven to figure out optimally how much to put into Roth vs. 401k (if OP can’t max out both) that will maximize bonus and investment savings while saving a maximum amount on taxes by reducing taxable income but I’m going to guess that maxing the 401k is more valuable than losing couple of grand off your bonus.
Be sure to clarify and ask your benefits coordinator if this is company policy. Doesn’t sound correct.
Thank you I will email HR then