Front loading question - what do you think?

[MVal]

So I'm pondering the possibility of next year perhaps being my last year at my current job...in order to maximize tax-free investment into the 401K, I'm pondering front-loading. I will not be able to afford to fully fund the 401K, but I could probably do about $10K for the year.

I am on track to have between $10K and $15K in after-tax savings at the end of this year. In your opinion, would it be wise for me to divert my whole paycheck to the 401K and HSA accounts for the first couple of months at least of 2016 and live off my after-tax savings until I get about half of my yearly goal for pre-tax savings in the bag? I'm reluctant to use my after-tax savings because I want this to be my FU Money, but if it would help me, I will. If I front loaded about $4-5,000 in the 401K at the first of the year, then I could scale back in March and only put in about $300 per paycheck, I think.

What do you think?

[dandarc]

We're doing this with my wife's 457 - she may be quitting for a career change about the middle of next year, and it just so happens she'll have maxed out her deferrals right around then.  Of course, we have a larger cash-cushion, and my income more than pays the bills, so not exactly the same as your proposal.

[MVal]

Okay, I am excited now. I just realized that since I can live off of much less than I make, I will be able to save much closer to the limit by front loading than if I spread the whole thing over the year. I usually gross about $1600 2x a month and I am currently living off of $1200/month roughly. So if I sacrifice about $3600 of my liquid savings to live on, I would probably be able to contribute about $3000 per month for 3 months...meaning in just the first quarter of the year, I would be funding my 401K with almost the total amount I thought I could afford for the whole year!

I still need to run some numbers on getting my HSA somewhat front loaded as well, so it will most likely be less than $3K per month, I'm sure.

Now I'm wondering in what order things are taken out of your paycheck...I'm not sure if they take out social security before any tax-free contributions like 401K and HSA; not that I think I can really rely on SS when I get older since I'm so young, but I wonder if you're contributing close to 100% of your income to a 401K if they take SS out at all or not.

[theknitcycle]

Now I'm wondering in what order things are taken out of your paycheck...I'm not sure if they take out social security before any tax-free contributions like 401K and HSA; not that I think I can really rely on SS when I get older since I'm so young, but I wonder if you're contributing close to 100% of your income to a 401K if they take SS out at all or not.

Yes.  Pre-tax 401(k) and HSA contributions reduce your current income taxes, but stuff like SS and Medicare are still based on your gross income and are not affected by any payroll deductions.

[seattlecyclone]

You say it's possibly your last year at your current job. Do you plan to get another job? If so, might their 401(k) have a higher amount of matching? I know last time I switched jobs I could have had a little bit higher employer match if I had back-loaded my contributions instead of front-loading them.

[MVal]

No, I don't actually have another fish on the line...yet. But I plan to spend time this next year looking at different options and to perhaps make it my last year at my current job.