Author Topic: How to max 401k?  (Read 3292 times)

monte0930

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How to max 401k?
« on: April 20, 2016, 09:33:37 AM »
The 401k at my company is not the best, but not the worst either. I started by contributing 6% as the company matches 50% of the first 6%. I did this for a few years, until I got serious about retirement investing (after reading this blog). Now I am up to an 18% contribution, but I wonder how to make sure I get the max $18,000 dollars per year. Since I get paid overtime and a (small) year end bonus, if I just set the percentage to equal $18,000 based on my base salary, it will likely go over the contribution by the end of the year. My strategy thus far has been to aim to get about $15,000 contributed by year end. Is there a better way to max your 401k? There is no option to put in a dollar amount and I can only change my contribution twice per year during open enrollment.

cschx

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Re: How to max 401k?
« Reply #1 on: April 20, 2016, 10:00:29 AM »
Does your company's payroll office not keep track of your contributions? Where I work they won't allow you to contribute more than the $18k max, and will suspend your contributions automatically if you hit the max. It's possible that your company does this and you just don't know about it - maxing contributions is sort of marginal behavior among employees, as I've discovered.

Personally my approach is to defer 100% of my paycheck until I hit the max, but I can understand why some people might find this unacceptable...

Drifterrider

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Re: How to max 401k?
« Reply #2 on: April 20, 2016, 10:07:59 AM »
There is no option to put in a dollar amount and I can only change my contribution twice per year during open enrollment.

Are you certain about that?  That sounds so strange.  Have you inquired with those responsible for deducting your contribution?

monte0930

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Re: How to max 401k?
« Reply #3 on: April 20, 2016, 10:09:49 AM »
I guess I should check about them cutting my contributions off at the 18k limit. Would be nice to front load the 401k towards the beginning of the year. My payroll office is not very helpful when it comes to questions like this.

Gin1984

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Re: How to max 401k?
« Reply #4 on: April 20, 2016, 10:13:51 AM »
I guess I should check about them cutting my contributions off at the 18k limit. Would be nice to front load the 401k towards the beginning of the year. My payroll office is not very helpful when it comes to questions like this.
May not be a good thing if they do not offer a "true up".  Ask.

dandarc

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Re: How to max 401k?
« Reply #5 on: April 20, 2016, 10:14:47 AM »
1.  Does company true-up the match if you front-load?  Not a given that if you cap out early in the year you'll get the same match as if you spread it out - some employers as large as the Federal Government don't true-up the match if you hit the limit early, so be sure to ask.

2.  Most places will cut you off if you hit 18K.  Even if they don't, if you catch it and correct it yourself, a return-of-excess contributions is not that big of a deal.

monte0930

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Re: How to max 401k?
« Reply #6 on: April 20, 2016, 10:18:58 AM »
1.  Does company true-up the match if you front-load?  Not a given that if you cap out early in the year you'll get the same match as if you spread it out - some employers as large as the Federal Government don't true-up the match if you hit the limit early, so be sure to ask.

2.  Most places will cut you off if you hit 18K.  Even if they don't, if you catch it and correct it yourself, a return-of-excess contributions is not that big of a deal.

Ok, good to know. I was under the impression that there was a penalty if you over-contributed.

ShoulderThingThatGoesUp

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Re: How to max 401k?
« Reply #7 on: April 20, 2016, 10:21:14 AM »
It should be on them to not over-contribute. I have it set to go over the max on pretty much the last paycheck (because I inevitably get a little overtime) and my last paycheck of the year is just however much bigger post-tax.

dandarc

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Re: How to max 401k?
« Reply #8 on: April 20, 2016, 10:27:24 AM »
Not a penalty unless you don't take care of it by your tax-filing deadline for the year the contributions were made.   You just pay taxes on the excess contribution and any associated earnings.  If you don't take care of it in a timely fashion though, the penalty is severe.  Taxed twice on the contribution - in the year it was made and in the year it was returned.  Good explanation here:

http://www.learnvest.com/2015/08/overcontributing-to-retirement-account/

As mentioned in the article, at a single employer this rarely comes up, but it is actually a pretty common thing if you change jobs or have 2 employers - 2nd employer doesn't have a way to know if you've contributed at 1st employer if you haven't told them.
« Last Edit: April 20, 2016, 10:29:20 AM by dandarc »

slugsworth

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Re: How to max 401k?
« Reply #9 on: April 21, 2016, 05:56:01 PM »
Fwiw, my company's form has a % built in, but after taking with hr  they were fine with me just crossing it out and writing in $1500 per month.