Fully fund your 401k fast

[CalBal]

Hi all,

If you were contemplating taking a job (no offer yet but if it happens) that did not offer a 401k plan, would you try to fully fund the one in your current position before leaving? As in, send 100% (or the highest % you could manage) from your paycheck directly to the 401k? I fully fund my 401k every year, but I do it by splitting the limit by 26 and contributing all year long.

[Sibley]

Assuming I could handle the cash flow stress, yes.

[Miss Piggy]

Yes. That said, I would have concerns about a company that didn't offer a 401(k). I would wonder, what other benefits are they not offering?

[ClovisKid]

Absolutely.  The max withholding the IRS allows is 75% of gross.

[catccc]

Absolutely.  The max withholding the IRS allows is 75% of gross.

Really?  I think your employer may have a percentage limit, but I think the IRS only has a dollar limit.  FWIW, DH contributes 80% of his gross to retirement, but it is split between a 403b and 457b.  I worked at one employer where the max was 25%, subject to IRS dollar limits, but my current employer doesn't state a max %.

[JLee]

Absolutely.  The max withholding the IRS allows is 75% of gross.

Source?

It looks like several people have definitely exceeded 75%: https://forum.mrmoneymustache.com/investor-alley/tax-effect-of-100-401k-contribution/

I can't find anything on the IRS's page claiming you can't: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits

[jeroly]

The thing to watch out for in pre-loading 401(k) contributions is that you have to manage to the situation where you are eligible for a corporate match of some percentage of your 401(k) contributions but miss out because you've already hit the contribution maximum. 

Example:  Company has a 100% match of the first 10% of contributions.  Say that your max is $18.5k and you earn $10k a month.  If you contribute your full pay in January and 85% of your pay in February (in order to hit the contribution maximum ASAP), you'd earn 10% x $10k=$1,000 in company match in January and 10% x $10k = $1,000 in company match in February for a total of $2,000 (There wouldn't be any more contributions that year, so that would be your total for the year).  If you contribute $18.5k x 1/12 in each of January-> December ($1,540 or 15.4%, so 10% or greater, giving you the full company match each month), you'd earn 10% x $120k = $12k in company match.

Note that some but by far not all companies have policies that retroactively review accounts for this situation, and add the difference.  If you have the opportunity for a corporate match, it's very much worthwhile getting the lowdown on how your company handles this situation before deciding to frontload your contributions if there's a chance you might stay in the job.

I knew that I was leaving my job after two months in a job that paid less than 12k/month (I am over 50 so could contribute up to 24.5k), and didn't know whether I would have more earned income later this year, so I had set my 401(k) withholding at 95%.  The way it wound up working is that they took out SSI and moved the rest to my 401(k).  Subsequent to my setting up my own withholding, they changed the rules to cap withholding at 80% but I think that was to make things easier for the payroll folks to deal with SSI and other withholding rather than an IRS requirement.

[chasesfish]

Your plan may have a limit on how much someone can contribute that's lower than the allowable 75% by the IRS.

My company's plan is 50%

I know this because I'm planning on pulling the plug very early in 2019.  There's a stock payment coming to me two months in then I'm out.  This payment is taxable income but can't be deferred into the 401k, so I'm trying to push my contributions as high as I can for the tax savings for those two months of work

[jlcnuke]

The basic limit on elective deferrals is $18,500 in 2018 and $18,000 in 2015 - 2017, or 100% of the employee’s compensation, whichever is less. The elective deferral limit for SIMPLE plans is 100% of compensation or $12,500 in 2015 - 2018. Catch-up contributions may also be allowed if the employee is age 50 or older.

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-contributions

Individual plan policies may limit contributions below your total compensation, but the IRS allows for up to 100% of your compensation to be contributed each year (up to your $ amount contribution limit).

[retireatbirth]

Yes. Even when a 401k is offered, you should always frontload to the extent your match remains maxed out. So usually that means a high contribution rate early in the year, then you cut it to the level you need for the full match.

This hasn't worked so well this year, but time in the market is king.

[CalBal]

Thank you everyone for your valuable insights. Some of these things I hadn't thought about before. I ended up digging up my company's plan info and it turns out we can contribute up to 100% of eligible compensation! (which actually would be < 100% because of SSI and Medicare, and also I have some (small amount) going towards ESPP each paycheck). I even learned that we have a RothIRA option! Not valuable for me, but I didn't even realize we had that.

I've been doing some thinking and I realized that if I ended up getting a *different* job, with better match, I would actually be shooting myself in the foot by pre-loading. My company has a pretty shitty match of 0.5% on the first 6% (yeah). I suppose I could try to calculate it so that I contribute 6% for all the rest of the pay periods of the year and front load the rest. However, if I found a better opportunity with a better match I wouldn't be able to take advantage of it in the current calendar year. Food for thought. Maybe I should do the reverse (only contribute 6% until the end of the year and then dump the remaining up the limit). The total match dollars we are talking about though are small, so maybe it isn't worth worrying about.

The position I am considering is not with a traditional company, and I know exactly what I would be giving up. I'm hoping I might be able to make it work such that I work part time (enough to keep benefits) at my current location, and fill in the rest with the other position. (I am not even to the interview stage yet, so this is all pie in the sky, but worth thinking about anyway. I am not sure my currently job would let me do that anyway.) If this sounds crazy, I am trying to position myself better for anything that comes open with the other position, which would be a much better fit for me. (If you are curious about what the big deal is with my job woes, check my journal (link at the bottom) or my case study (https://forum.mrmoneymustache.com/case-studies/case-study-quit-my-dumpster-fire-of-a-job-and-still-retire-early/). I am in a much better position than I ever though before I found this website, but I'm not FI yet. Currently my stress level is a little better at the current position, but it fluctuates from week to week, and some weeks I want to just walk out the door. So I am looking at every opportunity that I come across.)