Author Topic: Maxing 401K  (Read 1320 times)

dblaace

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Maxing 401K
« on: June 23, 2019, 06:07:53 AM »
I was wondering what the best strategy would be when maxing a 401k.

Do you do it in the quickest time possible say 6 months or spread it over the whole year?

Zamboni

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Re: Maxing 401K
« Reply #1 on: June 23, 2019, 06:15:57 AM »
Your choice. I spread it over the whole year. It's just easier and less stressful for me to have a constant monthly income so I can plan other spending, giving, and savings on autopilot without having to adjust part way through the year.

dhc

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Re: Maxing 401K
« Reply #2 on: June 23, 2019, 06:19:45 AM »
Depends mostly on whether or not your match gets trued up if you don't spread it out.

bridget

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Re: Maxing 401K
« Reply #3 on: June 23, 2019, 12:53:38 PM »
I don't have a match to consider (some companies will only match if you evenly spread throughout the year), and I like to know that if something weird happens like mid-year job loss, I will have gotten all of the tax benefits for the year already.  For example, I am taking a six month sabbatical for the second half of 2019, and it's nice to know I already maxed my 401(k) this year so I'm not losing out on any available tax benefits.

So, I frontload my 401(k), usually maxing it by March or April.  The rest of the year I save in a taxable investment account and a high-yield savings account (I'm not eligible for a Roth or any other tax-advantaged accounts).

Zamboni

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Re: Maxing 401K
« Reply #4 on: June 23, 2019, 06:59:41 PM »
I'm actually not sure that my employer would even let me front load. The highest amount you can contribute is by putting in the "Max option" instead of a number as the percentage . . . then they automatically spread it into 12 even withholdings. Then again, I haven't tried just putting in a giant percentage, so maybe that works to front load?

Previously I worked for a company that only allowed a 15% of salary employee contribution maximum (which especially sucked for me because this put my contributions below the federal maximum.) But, each company gets to set their own rules as long as they don't go above the allowable guidelines, so I should be happy we had a 401K at all I guess.

dblaace

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Re: Maxing 401K
« Reply #5 on: June 23, 2019, 07:18:49 PM »
I just got a raise and I usually raise my contribution when I do but if I'm maxing it out already it will just make it quicker. I do front load my IRA in January.


Mine says it allows 100% and a 4% match.
Contribution Limits
   Contributions to Deferred Salary may be made in 1% increments from 1% to 100%*.
   Contributions to Roth Salary Deferral may be made in 1% increments from 1% to 100%*.
   Total contributions for All Sources may not exceed 100% of your annual salary, or $19,000* annually.
   Total combined pre-tax and Roth contributions to all qualified retirement plans cannot exceed $19,000* in 2019.
   *Since you will be 50 or older in 2019, you may exceed the normal plan and legal limits for pre-tax and Roth contributions by up to $6,000 in 2019.
   Compensation over $280,000 for 2019 is excluded for determining contributions to the plan.
   Any amounts contributed may be reduced or returned to you as required by the Internal Revenue Code.

ender

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Re: Maxing 401K
« Reply #6 on: June 23, 2019, 07:31:01 PM »
Depends mostly on whether or not your match gets trued up if you don't spread it out.

Or, if potential future employers do.


dhc

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Re: Maxing 401K
« Reply #7 on: June 25, 2019, 10:21:17 AM »
Depends mostly on whether or not your match gets trued up if you don't spread it out.

Or, if potential future employers do.
Excellent point. My current employer also has a higher match than my last one did, but because I'd maxed early the year I switched jobs, I couldn't take advantage of that until the next year.


I'm jealous of the poster with the auto max option. Since my match isn't trued up, I always end up needing to reset my contribution percentage at least twice a year in an attempt not to max until my final paycheck.

dblaace

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Re: Maxing 401K
« Reply #8 on: June 25, 2019, 05:09:22 PM »
I just found out that we do not have a true up provision so I'll be spreading them out.

Thanks for the heads up!
« Last Edit: June 25, 2019, 05:54:58 PM by dblaace »

EngineerOurFI

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Re: Maxing 401K
« Reply #9 on: July 12, 2019, 07:34:16 PM »
@bridget

So, I frontload my 401(k), usually maxing it by March or April.  The rest of the year I save in a taxable investment account and a high-yield savings account (I'm not eligible for a Roth or any other tax-advantaged accounts).

Bridget, assuming you donít have access to a HSA, but you may want to check out the Investment Order sticky post and look into doing a Backdoor Roth IRA.  Basically, regardless of your income, you can max out a Traditional IRA yearly and make your contributions non deductible and then roll it over (yearly) to an ever growing Rothís IRA.  This Backdoor method is possible thanks to the lack of income limits for ROLLOVERS from tIRA to rIRA.  Definitely something to look into maxing before your taxable accounts.

js82

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Re: Maxing 401K
« Reply #10 on: July 13, 2019, 10:56:05 AM »
There's no "right" or "wrong" answer here as long as you aren't missing out on any matching payments, are contributing to your investment accounts in a way that's tax-efficient, and that the way you schedule your contributions fits with your own particular budget.

In my case, my company's 401k match is per period and there's no true-up provision, so I always want to be contributing at least 6% of my pay to the 401k to not lose out on the match.  If I hit the deductible cap early, I can still get the match on post-tax contributions.  I can also separate contribution rates for regular periodic paychecks and bonuses (both profit-sharing/variable-compensation plan bonuses as well as one-time special bonuses).  Considering this, my personal strategy is to plan my contributions around my regular/non-bonus payments, contribute enough of my bonus payments to ensure I get the company match.  The extra cash from the bonus payments goes into the Roth or my taxable investment account.  In the end, my goal is to max the 401k while keeping take-home pay as predictable as possible.

I'm jealous of the poster with the auto max option. Since my match isn't trued up, I always end up needing to reset my contribution percentage at least twice a year in an attempt not to max until my final paycheck.

I usually end up doing something similar, but often I'll end up setting my after-tax contribution to 6% or so for the last couple paychecks of each year to ensure I still get the company max even if I hit the pre-tax cap.
« Last Edit: July 13, 2019, 10:58:37 AM by js82 »