Author Topic: Max 401k as quickly as possible?  (Read 3490 times)

mountainstache7

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Max 401k as quickly as possible?
« on: July 27, 2015, 10:15:23 AM »
I apologize if there's another post regarding this subject, but was just curious on other opinions if it makes sense to max your 401k account as quickly as possible each year versus spreading it out over the course of the calendar year?

Frankies Girl

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Re: Max 401k as quickly as possible?
« Reply #1 on: July 27, 2015, 10:31:56 AM »
It depends on how your company does a match, and if they allow you to make contributions that may be a significant portion (or all) of your paycheck for several months (front loading).

In the case of a match, you need to see if they only match each contribution per pay period or if it's a total match at the end of the year. If it's the first, then yes, it would be bad to front load as you'd miss out on any match after the contributions were maxed out.

Basically, you'd need to check the rules with your company to determine if it will work for your situation. But I've read of others doing this on the forum, and others that were not allowed to do so.

mountainstache7

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Re: Max 401k as quickly as possible?
« Reply #2 on: July 27, 2015, 10:36:36 AM »
They do quarterly matching and still add their match quarterly regardless of when I max my 401k. To add a little more background, I get a rather large bonus at the end of the 1st quarter each year. I can either take it or max out my HSA and/or 401k or very close to it. Since the company continues to add quarterly matches, I wasn't sure if it made sense to max everything right away or if I'd be missing out on better gains by making use of the dollar cost averaging over the course of the year. I assume one advantage of maxing right away would be more dividends being reinvested?

dandarc

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Re: Max 401k as quickly as possible?
« Reply #3 on: July 27, 2015, 10:42:07 AM »
They do quarterly matching and still add their match quarterly regardless of when I max my 401k. To add a little more background, I get a rather large bonus at the end of the 1st quarter each year. I can either take it or max out my HSA and/or 401k or very close to it. Since the company continues to add quarterly matches, I wasn't sure if it made sense to max everything right away or if I'd be missing out on better gains by making use of the dollar cost averaging over the course of the year. I assume one advantage of maxing right away would be more dividends being reinvested?
On the whole, dollar-cost-averaging costs you money.  Because the market goes up over the long term, so on average, you actually pay more for shares by dollar cost averaging vs. lump sum.

So long as you're not losing anything on the match, front-loading is good strategy.  Lots of up-sides - your money in your tax-advantaged accounts is growing a little bit longer, you won't "miss-out" on tax-advantaged space if you wind up taking the rest of the year off work, etc.

forummm

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Re: Max 401k as quickly as possible?
« Reply #4 on: July 27, 2015, 10:42:29 AM »
There are other posts. You don't want to miss out on any employer matching contributions. So if your employer matches but doesn't "true up" at the end of the year, you don't want to max out early. Otherwise it can be fine to max out early.

SuperSecretName

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mountainstache7

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Re: Max 401k as quickly as possible?
« Reply #6 on: July 27, 2015, 10:48:59 AM »
I don't lose any of the matching, they "true up" quarterly. Based on the replies it sounds like front loading is a great idea in this situation. I appreciate the feedback.

rpr

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Re: Max 401k as quickly as possible?
« Reply #7 on: July 27, 2015, 10:53:50 AM »
I don't have a match but I spread contributions equally over the whole year. I'm somewhat lazy and prefer to keep things simple for me and for the HR people. I agree that it would be financially better if I were to front load.

ZiziPB

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Re: Max 401k as quickly as possible?
« Reply #8 on: July 27, 2015, 12:15:46 PM »
We don't lose the match. I max ASAP because we are job hoppers. Often when you join a new company, you aren't eligible for a 401k for a certain period. If I max it in the first half of the year, I know it's done, just in case I don't have the opportunity to do it later on.

On the other hand, you could get another job that allows immediate contributions and has a match and then you lose out ;-)  It happened to me.  I worked for an employer who offered no match so I usually maxed my 401k by the summer.  5 years ago I changed jobs and started working for a company with a great matching policy.  But I couldn't contribute any more because I reached my max for the year already!  Actually, now that I have educated myself, I know that there are ways around that but at the time I didn't know it.  For those interested,  the way to deal with it is to make contributions at your new company and just ask for a return of excess contributions from the 1st job...