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EXPLORE COMMON FINANCIAL QUESTIONS FOR PILOTS

As a pilot, you’ve spent your life charting the skies. Now, let’s ensure your financial future takes flight. Our team of experts is here to help you navigate the full range of financial planning tools. We understand the unique challenges and opportunities that come with your career. That’s why we’ve compiled a list of frequently asked questions to bring insight into the unknowns and provide you with the best information to make informed decisions about your future.

FIRM FAQ

What types of clients do you serve?

We serve airline pilots, business aviation pilots and transitioning military pilots. Our typical client earns between 300k – 800k annually and has saved in excess of 500k in investable assets.

Are you a fiduciary?

Yes,360 Aviation Advisors is a Registered Investment Advisor. Our client advisors are CERTIFIED FINANCIAL PLANNERS(™). We are fiduciaries at the entity and individual level. This means we put the interest of our clients ahead of our own.

Do you offer an hourly planning engagement?

Our services are designed for long-term relationships with our clients. We do not offer hourly planning engagements or project based engagements.

RETIREMENT PLANNING FAQ

How much should I invest in my 401k?

We evaluate many factors when answering this question. As you can imagine, this answer is based on several aspects of your financial situation. We will consider where you are in your financial journey, how much you’ve already saved, your current and future tax circumstance, your company’s NEC, the amount of pre-tax, tax-free and taxable assets you have, your current and future goals, what goals you need to support before retirement age and what other investment opportunities you are pursuing. In general, we believe your 401k will serve as a core tenant to your investment strategy. We also believe there is a tremendous opportunity to build around the core tenant and customize your investment strategy to your preference and financial goals.

How does the airline NEC work?

“NEC” stands for non-elective contribution. This means, your airline will contribute to your 401(k) plan, even if you do not. This differs from other employer contribution arrangements such as the employer match often used at regional airlines. Unlike a pension, the NEC is deposited into your 401k. Once the money is in your 401k account, it is yours and the airline does not have any claims on it, regardless of the financial condition of the company.

Do I need to contribute to the 401k since I am getting a large NEC?

With major airline NEC at record highs, it’s natural to wonder if those contributions are sufficient to carry you to retirement. It’s also easy to overlook the tax benefits that qualified accounts provide, especially if you’re still on your way to peak earning years. As you know, the airline industry is fairly cyclical and it’s likely you will experience multiple career disruptions before your final flight. Before deciding not to contribute to the 401k, due to the high NEC, we encourage our clients to evaluate their personal situation. Keep in mind that an investment strategy that only relies on NEC to take you to retirement, is reminiscent of the pension days, when a lot of pilots placed trust in the airlines to manage things well and do the right thing for the long-term. We don’t have to remind you how that turned out. Since much of the success in personal finance is based on a mix of personal behavior, such as saving early and the power of compounding, we believe it makes sense to have a sufficient financial altitude before pulling back the throttle on your savings.

Do I make too much to contribute to a Roth 401k?

As long as you are eligible to contribute to the company 401(k) and they offer a Roth option, you can make Roth 401(k) contributions. We do encourage you to monitor your marginal federal tax bracket and your state bracket to identify the point where it makes sense to begin making pre-tax contributions. This decision should be made strategically.

I've been told I make too much to contribute to a Roth IRA. Is that true?

Exceeding the income limit to contribute to a Roth IRA is common for major airline pilots. Each year the IRS publishes modified adjusted gross income limits which limits who can contribute to a Roth IRA. If you are unable to contribute to a Roth IRA, you can look at the company’s 401(k) Roth option. You may also explore the feasibility of “back-door” Roth conversions.

What is a "back-door" Roth conversion?

A “back-door” Roth conversion is the process of making a non-deductible contribution to an IRA and then converting the amount in the IRA to a Roth IRA shortly thereafter. While an excellent tool, you should exercise caution when conducting “back-door” Roth conversions. Pre-tax IRAs, which included rollover IRAs from previous employers can cause unintended and undesirable consequences. We often help clients deal with pre-tax IRAs before executing the “back-door” strategy.

How do I max out my airline 401k?

There are a few contribution limits to think about when maxing out your airline 401k. The first limit that you have direct control over maxing out is your elective deferral limit. This is the amount of money that you can direct from your paycheck into your 401k. The second limit is the annual additions. This limit includes the amount of money you put in (the elective deferral) and what the airline contributes for you (the non-elective contribution). Together, these amounts must not exceed the Annual Additions Limit. Both the elective deferral and annual additions limit are set by the IRS and change over time. It’s possible to max out your portion of the 401k, and still have room to contribute more on top of the company’s NEC, via post-tax dollars. This opportunity is usually short-lived as FOs who have been with the company for 4-5 years can start to receive spill cash, depending on how many hours they credit in a year.

What is "spill cash"?

“Spill cash” is what happens to the company’s NEC after your 401k has hit the Annual Additions Limit. Traditionally, spill cash would come back to you as taxable income. In the most recent contract cycle, the Big Four have adopted a Market Based Cash Balance Plan (MBCBP). If you opted into the MBCBP or were hired after it was established, your spill cash will go into the MBCBP which is a tax-deferred account. This means you will not pay taxes on it now, but you will pay taxes on it when you eventually take it out.

How should I structure my distributions in retirement?

Ideally, you’ll structure the distributions from the accounts in a manner that will satisfy your cash flow need, provide the desired tax liability and leave the remaining account balances positioned to meet your future cash flow, legacy or charitable goals. As a pilot who saved well, it’s likely that you have tax-deferred, tax-free and brokerage assets to pull from. You should expect your distribution strategy to be dynamic and responsive to changes in market conditions, tax law and other financial events in your life such as inheritance, receiving lump sum payments, and pension income.

INVESTMENT MANAGEMENT FAQ

What is your investment philosophy?

We believe capital markets work. Our investment philosophy relies on a mix of strategic active and passive management strategies. Diversification, tax-efficiency, cost, asset location and discipline matter when pursuing the investment outcomes our clients desire. We understand investors who align their investment strategy with their risk tolerance and risk capacity are more likely to stick with their plan during market swings. This is an important element of long-term success. We believe investors should avoid trying to time the market based on short term events or headlines. We do not believe in nor encourage tactical investment management.

Will you provide advice on investment accounts I manage myself?

No. We will provide analytics for your self-managed accounts. We will also provide the ability for you to see all of your accounts together however we will not provide research, buying, selling or rebalancing recommendations for accounts you self-manage.

How much does your investment management service cost?

You can find the pricing for our services here.

If you manage my assets, do I need to move them to your investment platform?

In many cases, yes, clients decide to custody their assets at Altruist, the custodian that we use for our investment management services.

Do I need to sell my investments before moving them to your platform?

In most cases you will not have to sell positions before moving assets to our platform. In the case of brokerage accounts, we actually prefer to review your assets, cost basis and embedded gains prior to making any sell decisions. This allows us to build and implement your portfolio with tax efficiency in mind.

TAX PLANNING AND PREP FAQ

What if I'm already working with a tax preparer?

That’s great! We will partner with your tax preparer to ensure a proactive approach to your tax planning needs.

What are some common tax scenarios you help pilots with?

How to take advantage of lower income years during the beginning of your major airline career
Determining the tax impact when you upgrade to CA
Determining the tax impact if you change equipment
How to minimize current and future tax liability
Determining when to contribute to the Roth or Pre-tax 401k
Determining when to execute Roth conversions and how much?
Creating tax-efficient investment strategies in the brokerage account to minimize tax drag
Determining which funds to sell in the brokerage account to raise cash and minimize capital gains
Determining when to transition elective deferral investment from the 401k to other investments
How to explore and take advantage of tax-efficient alternative investments
How to structure distributions from your retirement accounts to manage your tax liability
Understanding how charitable gifting can lower your tax burden
Understanding how real estate holdings fit in your portfolio
Determining tax efficiency strategies with pilot side-hustles

UNION AND AIRLINE BENEFITS FAQ

Select a major airline below for answers to company specific retirement benefits

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