Author Topic: Max 401k in the final (partial) year of work?  (Read 856 times)

ZiziPB

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Max 401k in the final (partial) year of work?
« on: December 14, 2017, 09:56:30 AM »
I'm planning to FIRE at the end of March 2018 and need to make a decision whether I want to max my 401k contributions during the first 3 months of the year or am I better off contributing just enough to get the match (6%) and putting money into the taxable account instead.  I will be 50, so I can do the regular contribution and the catchup.  Expected income for the first 3 months will likely be in $150K+ range due to a bonus and RSU vesting that takes place in March.  Filing status is single.  I currently have about $600K in taxable and about $750K in tax deferred accounts which I am planning to convert Roth over time.  My expectation is that I will not be able to convert it all over 20 years and that I will be taking some RMDs.

ETA: RSUs don't count towards the 401k contributions so I expect an income of about $100K that would be the basis of the deferrals.  So we're talking about contributing 6% or 24% of that.

Thoughts?
« Last Edit: December 14, 2017, 10:02:58 AM by ZiziPB »

ZiziPB

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Re: Max 401k in the final (partial) year of work?
« Reply #1 on: December 14, 2017, 01:38:53 PM »
Here is my back of the napkin "analysis".

Normally, I'm in the 33% federal bracket plus 6.50% for the state.  So maxing out the 401k was a no brainer.  Assuming no new tax bill, I'd be in the 28% federal bracket plus 6% for the state in 2018.  I don't think I'll be able to stay in the 15% bracket in retirement.  I may end up in 25%.

Is that enough of a difference to max the 401k instead of investing in taxable? What say you?


dandarc

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Re: Max 401k in the final (partial) year of work?
« Reply #2 on: December 14, 2017, 01:49:18 PM »
I'd put it in the 401K.  Your spending could be lower than projected, you could move, tax rates can change (such as a lot of the 25% bracket becoming a 22.5% bracket in the near term).  All of these things can swing both ways of course, but 34% is a pretty big savings today. 

Luckily, we're only talking about a little under 2% of your total investments, so even if you pick wrong for these last $24K deferral dollars, you're gonna be just fine overall.