Author Topic: 401(k) Contributions  (Read 3357 times)

gobius

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401(k) Contributions
« on: March 12, 2014, 10:32:47 AM »
I'm not sure if this has been answered before but figured I would ask:

My employer goes through Vanguard for my 401(k).  Recently I decided to contribute the max $17,500/year to it (previously I was contributing enough for the match), as my income is within the marginal 25% tax bracket.  Previously I avoided this because I didn't plan to retire early and assumed I would be in the same income bracket at retirement.  Since I intend to retire early on a smaller budget I changed my mind.

Anyway, Vanguard allows me to contribute up to 50% of my pre-tax income each paycheck and I'm allowed to change it online whenever I want.  I make well over $35K so I don't need to contribute 50% to hit $17,500.  I was considering contributing 50% of my pre-tax pay for a few months, and then lowering the contribution to the amount needed to get the company match for the rest of the year.  That way I get the money in as soon as possible.  Note that I can easily live off what my take-home will be while I contribute 50% and I have enough cash to get me by if something came up.

Any thoughts on this?  A follow-up:  I didn't contribute close to $17,500 in 2013.  Are there any tax rules where I can include contributions this year as part of last year's contributions, effectively allowing me to contribute more than $17,500 this year?  I haven't done my taxes yet.

nicknageli

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Re: 401(k) Contributions
« Reply #1 on: March 12, 2014, 10:43:37 AM »
I've seen other posts that are positive about front loading your 401k every year.  They also point out to make sure that you don't lose out on the company match, like you were saying.

I don't believe there's any way you can contribute any more to your 401k for the 2013 tax year.  I believe that's a calendar year cutoff.

Eric

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Re: 401(k) Contributions
« Reply #2 on: March 12, 2014, 10:58:42 AM »
The Mad Fientist just wrote a post about front loading your 401k contributions.  Makes sense to me.

http://www.madfientist.com/front-loading/


seattlecyclone

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Re: 401(k) Contributions
« Reply #3 on: March 12, 2014, 11:25:04 AM »
Front-loading your contributions is good when the market goes up during the year, bad if the market goes down during the year. The market goes up more often than not, so on average you'll probably come out ahead by front-loading. You will want to leave enough room under the max to get the full benefit of your employer match, but you seem to have already thought of that. I think your plan is a good one.

As to your second question, there's no way to retroactively contribute for 2013. That ship has sailed.

gobius

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Re: 401(k) Contributions
« Reply #4 on: March 13, 2014, 08:23:05 AM »
Thanks for the answers guys.  I figured the 2013 contributions couldn't be added in 2014 but was holding out hope.  I may research more just to be sure but I'm sure someone on here would have figured that one out if it was possible.

foobar

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Re: 401(k) Contributions
« Reply #5 on: March 13, 2014, 12:36:14 PM »
Talk to your HR department. Often time companies will top you up so that you get the benefit of the match even if you are not contributing in certain months.  This used to happen to me on a regular basis when you get a raise. Other times they don't.

Lump sum investing tends to beat DCA so investing early wins. You could lose if for example you moved to a better employer (i.e. one with a 6% match instead o 3%).

I'm not sure if this has been answered before but figured I would ask:

My employer goes through Vanguard for my 401(k).  Recently I decided to contribute the max $17,500/year to it (previously I was contributing enough for the match), as my income is within the marginal 25% tax bracket.  Previously I avoided this because I didn't plan to retire early and assumed I would be in the same income bracket at retirement.  Since I intend to retire early on a smaller budget I changed my mind.

Anyway, Vanguard allows me to contribute up to 50% of my pre-tax income each paycheck and I'm allowed to change it online whenever I want.  I make well over $35K so I don't need to contribute 50% to hit $17,500.  I was considering contributing 50% of my pre-tax pay for a few months, and then lowering the contribution to the amount needed to get the company match for the rest of the year.  That way I get the money in as soon as possible.  Note that I can easily live off what my take-home will be while I contribute 50% and I have enough cash to get me by if something came up.

Any thoughts on this?  A follow-up:  I didn't contribute close to $17,500 in 2013.  Are there any tax rules where I can include contributions this year as part of last year's contributions, effectively allowing me to contribute more than $17,500 this year?  I haven't done my taxes yet.

skyrefuge

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Re: 401(k) Contributions
« Reply #6 on: March 13, 2014, 01:24:29 PM »
Talk to your HR department. Often time companies will top you up so that you get the benefit of the match even if you are not contributing in certain months.  This used to happen to me on a regular basis when you get a raise. Other times they don't.

Yeah, the term for this is "true-up", and it should be specified somewhere whether or not your plan does true-ups. However, when this was a part of my 401(k) plan, the true-up would come at the beginning of the next year, so when going for ultra-optimization (which I guess is the point of this thread), it would be slightly more optimal to continue to contribute up to the match each month in order to get that match money invested sooner.

Ok, now someone even nerdier than me needs to figure out, in the absence of a true-up, what the crossover point is where the benefits of investing as-soon-as-possible outweigh the benefit of dragging it out in order to get the match! (I guess the match would have to be pretty low, but I'm curious what that point would be.)