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Welcome to the 50th edition of the Tech Financial Planning (TFP) newsletter.

There are 2 big changes to the Procore 401k plan in 2024.

A $5,000 cap on the Procore match
Adding an after-tax contribution option to the 401k plan, with In-Plan conversion (if this sounds like gibberish, that’s to be expected)

Let’s dive into each and what this might mean for you.

The $5,000 cap on the Procore match

If you make more than $125,000 and contribute 5% (or more) to your Procore 401k, this affects you because you will get less in matching contributions in 2024 than you did in 2023.

And the more you make, the more the impact.

Prior to 2024, there was no cap on the Procore match (beyond any IRS limits)

The way the Procore match worked was that Procore matches 100% on the first 3% that you contribute to the 401k and 50% on the next 2% that you contribute.

Put more simply, if you put in 5%, Procore would match 4%.

Let’s say you make $200,000.

If you put away 5%, that’s $10,000 ($200,000 x .05 = $10,000).

And Procore would also contribute (match) $8,000 ($200,000 x .04 = $8,000).

So when you put away $10,000, without doing a thing, would have $18,000 in contributions.

Pretty sweet.

So what changed?

“Procore is balancing the ongoing economic headwinds with our desire to help employees save for retirement; as a result, beginning January 2024, Procore will maintain our match formula but will be instituting a $5,000 annual cap on the company match.”

Put more simply, the way Procore calculates the match stays the same, until the match amount goes over $5,000.

Once it hits $5,000, it is capped, even if you continue to contribute more.

We see in the chart that anyone making over $125,000 will receive less in matching contributions than they did in 2023 (all things being equal).

Someone making $150,000 would receive $1,000 less in match in 2024, while someone making $400,000 would receive $11,000 less in match in 2024.

That can have a big impact!

Adding the 401k after-tax contribution option, with Roth In-Plan conversion

In previous years, the Procore 401k plan allowed for contributions in two ways; as Traditional 401k contributions or as Roth 401k contributions.

A quick reminder on the differences between the two (although not an exhaustive list)

Traditional: These are made pre-tax aka save on taxes now. Earnings grow tax deferred. In retirement, you will pay taxes when you take the money out.

Save now, Pay taxes later

Roth: You will pay taxes on the money you put in today. Earnings and contributions grow tax free. When you take out your money in retirement, you won’t owe any taxes.

Pay taxes now, save later

So what changed?

“To offset some of this impact [of the cap on the amount of the company match], beginning January 2024 Procore will be adding an additional 401k after-tax contribution option. We believe this will allow our employees additional flexibility in contributing to 401k and determining when and how they are taxed on their retirement funds.”

For 2024, you can contribute up to $23,000 to either the traditional or Roth 401k (and an additional $7,500 if you are 50 or older).

However, with the After-Tax addition, you can contribute even more toward retirement, if you’d like.

The IRS allows you (as a Procore employee) to contribute a maximum of $69,000 in 2024 ($76,500 if you are 50 or older) to your 401(k) across all contribution types.

This includes: Traditional (Pre-tax) + Roth contributions, + Procore 401(k) match + the After-Tax portion.

(Important reminder: an After-Tax 401(k) is separate and different from contributing to the Roth 401(k) as we’ve described it above.)

So you could potentially contribute up to an additional $40,000 (or more) towards retirement.

But just as important, this addition offers a crucial component: the in-plan conversion.

This allows you to convert these After-Tax dollars into Roth dollars (potentially a tax-free maneuver).

Combined, this process is commonly called the Mega-Backdoor Roth.

If done correctly, you can put extra away for retirement and supercharge your Roth accounts.

Then these funds won’t just grow tax-deferred, those earning will also be tax-free when you take the money out in retirement (just like all other Roth accounts!).

To do this, you will need to call Fidelity to request a conversion.

This creates a unique planning opportunity for high income earners to supercharge retirement savings.

Note: this is not an exhaustive overview of all the factors and ins and outs of the after-tax plan and conversion.

Make sure you do your due diligence, read all the necessary information, and talk with your financial and/or tax advisors.

It looks like Fidelity has a pretty good FAQ that covers a lot of this too.

What does this mean for you?

1) Consider how much you want to put toward the Procore 401k.

If your main reason for contributing is to get the full Procore match, you might want to look at how much you’re going to contribute this year.

If you will make over $125,000 in 2024, you could potentially contribute less and still receive the full match

We can see that higher earners could potentially contribute less each paycheck to their 401k and still receive the full $5,000 Procore match (btw - I don’t believe the Procore 401k allows for a fraction of a percent of contributions).

Depending on your plan, this could be money that you could allocate elsewhere for other goals, investments, etc.

Note: this is not a recommendation to contribute less to the Procore 401k but a consideration and food for thought.

I don’t know your personal situation

2) If you want to put more away for retirement, the new After-Tax option could be a big win.

You can contribute a whole lot more than $23,000 this year.

This can be a way to boost (or catch up) retirement savings and put you in a really great spot

3) Think about why and where you are saving

Where are you at, and what are you working towards?

The after-tax option might be really nice, but if you are saving up for a house, then more retirement savings might not be the answer.

You want to give your investments and savings both a purpose and a timeline.

A common mistake I see, particularly for younger professionals, is that they have all their investments in retirement accounts, but not much for the medium term.

The problem with that is there’s so much life ahead!

Putting It All Together

These are two pretty big changes to start off the year.

It goes without saying that the cap on the match is a bummer, particularly if you’re used to bigger Procore contributions on your behalf.

And for some, the After-Tax addition will be an added benefit, but candidly, for many Procorians, it won’t apply.

But use this opportunity to reevaluate your finances and your plan for 2024 and beyond.

Perhaps you bring your 401k contributions down but increase how much you’re putting toward the ESPP.

Or you put some towards the after-tax portion.

This is a great reminder of why financial planning is never static - life changes all the time.

Especially for Procore employees - the stock price, the benefits, your compensation, your goals (and more) are almost always in flux.

I’ll be meeting with my clients at Procore in the spring (and potentially sooner) to discuss their plans for saving, investing, and spending this year.

You can be sure the recent changes to the 401k plan will be a part of the discussion.

If you are a Procore employee and you are looking for someone to help you make sense of these recent changes, along with your other Procore benefits, we would love to talk.