Dustin Eldridge, CFP®, CPWA®
NFL Retirement Plan (2022) - NFL 401(k) Plan Breakdown
As we discussed in our post about the NFL Pension Plan, the NFL retirement plan and benefits package is extensive and made up of several different programs. The second program we believe is important to discuss is the NFL Player Second Career Savings Plan, aka the NFL 401(k) Plan.
The NFL 401(k) plan is like the Solo 401(k) plan we discussed in a previous blog post here, with a few differences. We will detail all aspects of the plan below to help you understand how this plan can benefit you as a player.
What is a 401(k) Plan?
We didn’t cover generally what a 401(k) is in our Solo 401(k) post so we thought we would touch on it here. A 401(k) plan is a retirement savings plan that employers can offer their employees to help them save for retirement. The plan includes tax advantages for saving money in the account as an incentive to save money for your own retirement, instead of relying on things like social security.
Generally, both the employee and the employer can make contributions to the plan. Both types of contributions are pre-tax and discretionary (for the most part – more on that later). Pre-tax contributions means that you do not pay income taxes on your contributions to the plan today, reducing the income taxes you pay now (typically at a very high-income tax percentage) and deferring them until retirement (ideally).
Who can participate in the NFL 401(k) plan?
Players on a club’s active, inactive, practice squad, reserve/injured, reserve/COVID or physically unable to perform (PUP) lists can contribute to the plan.
If you are in one of the categories listed above, you are automatically enrolled in contributing to the NFL 401(k) plan. This is important to know and here are a few key facts about the automatic enrollment.
You can elect out of the automatic enrollment. Most players would like to contribute to the plan. However, if you are on the practice squad and the income you are receiving is just enough to cover your expenses you may want to opt out of contributing to the plan.
The automatic contributions begin with your first paycheck on or after October 15th. At this time, 10% of your pre-tax salary will be contributed to your account (up to the IRS limit, which is $20,500/year for 2022).
The money contributed will be invested in a Target Date Fund designed to mature within a few years of your 60th birthday.
QUICK NOTE – Target Date Funds are diversified investment vehicles (mix of stocks and bonds) that automatically reduce the risk (less stocks and more bonds = reducing risk) of the total investments in the fund as you approach a certain age, in this case 60 years old.
These automatic contributions will continue through March 31st, and will also continue from October 15th through March 31st for every season you are employed in any of the categories listed above.
Again, as described above, your contributions are withheld on a pre-tax basis from your Club paychecks and put into your account. Because this money is put in before taxes are taken out, you will pay less in taxes now (always a good thing for NFL players).
Will my Club make contributions on my behalf?
Typically, a traditional business will make contributions to a 401(k) for their employees. Currently, Clubs are not making contributions for Plan Years 2020-2023. Beginning in 2024 through 2030, Clubs will begin to make contributions for players. This is a fantastic change negotiated in the latest collective bargaining agreement.
The contributions will depend on whether you earn a Credited Season as a player or earn 3 Game Credits as a Practice Squad player. These are explained in the sections below.
As a reminder, as an active player you earn a Credited Season if you are on the active, inactive, IR or PUP roster for 3 or more regular or post-season NFL games, per plan year. You can also earn a Credited Season in a few other ways, which we summarized in our blog about the NFL Pension Plan here.
How do the Club contributions for plan years 2024-2030 work?
In the Plan Year when you earn your first Credited Season, you will receive $1,500 from your Club to your 401(k), regardless of how much you contribute to the plan.
For players with 2 or more Credited Seasons, there are two kinds of Club contributions, matching and minimum contributions.
Matching Contributions – Clubs will make a “2 for 1 match,” which means the Club will contribute $2 for ever $1 dollar you contribute during the calendar year, subject to the maximums shown below.
2024 - 2025 – $34,000
2026 - 2027 – $36,000
2028 - 2030 – $38,000
Minimum Contributions – Clubs will make a minimum contribution to your 401(k) account if you fall into one of the following two categories.
Did not contribution money to your 401(k). As in you opted out of the automatic contributions as described above.
Are entitled to a match that is less than the minimum contributions detailed below. As in, if your $2 for $1 amount isn’t more than the below amounts you will get these amounts anyways.
Minimum contribution amounts:
Exactly 2 Credited Seasons – $7,200
3 or More Credited Seasons - $3,600
What if I am a Practice Squad Player and don’t earn a Credited Season in the same year?
As a Practice Squad player, you are only eligible for matching contributions and will not receive minimum contributions. The amount of matching contributions as a Practice Squad player are similar, $2 for every $1 you contribute (“2 for 1 match”) during the calendar year, but are limited at up to $1,500.
As a note, if you end up earning a Credited Season (i.e. end up being on the Active roster for 3 games) in the same year you qualified for matching contributions as a Practice Squad player, you will be eligible for the full matching and minimum contributions and not limited to the Practice Squad player limitations.
What is the timing of Club contribution 2024-2030
Club contributions, matching or minimum, will be made by December 1st, if you meet the following.
Earn a Credited Season by week 6 of the regular season AND
Have made your own contributions of at least half of the maximum Club contribution by November 18th.
As an example, if in 2024 you earned a Credited Season by week 6 and contributed $17,000 by November 18th then you will receive the full $34,000 on December 1st.
If you do not meet these two requirements, then the Club contributions will be made by March 31st of the following calendar year (this includes Practice Squad Players).
Are there any limits on the total amount that can be put in my 401(k) each year?
The answer is YES. As mentioned earlier, for 2022 the limit on the amount you can contribute as the “employee” is $20,500.
There is also a total limit on contributions including your contributions and the Club’s contributions, when they start in 2024. We do not know that limit yet, this is set for the next calendar year sometime in November or December of the prior year. As an example, if the Club was making contributions in 2022, the maximum amount combined between your contributions and the Club’s is $61,000. Based on the current amounts the Club will contribute in 2024, it is likely you will never hit this maximum, whatever it ends up being in 2024.
Finally…When can I access the money in my 401(k)?
You are able to take money out of your 401(k) for several reasons, but we are going to focus on the ideal situation. The NFL 401(k) is no different than any other 401(k) plan in this regard (as long as you have more than $5,000 in your 401(k)). You are eligible to take money out of your 401(k) after you turn 59.5 years old, even if you are still working for a Club.
QUICK NOTE - since all of the money contributed to the plan was done so pre-tax, any money you take out will be fully taxable, think of it like receiving a paycheck.
There are other ways that you can access the money in your 401(k). There are also other items that we could cover related to the plan including investment choices, investment expenses and what happens if you die or get divorced. However, we feel all of these topics are specific to each player’s situation and are best to be discussed in a one on one consultations.
The NFL Player Second Career Savings Plan, aka the NFL 401(k) Plan, is similar to any traditional companies 401(k) plan with a few unique features, especially starting in 2024. Similar to our comments on the NFL Pension plan, there are a lot of specifics related to this plan that we believe require one on one conversations with each player to make sure you are maximizing what this plan can offer you.