Author Topic: Starting new jobs--directing as much as possible to 401k to max out  (Read 1069 times)

argentstache

  • 5 O'Clock Shadow
  • *
  • Posts: 15
Dear all,
I'm starting a new job (hopefully) by the end of the month, and my current plan is to direct close to 100% of my salary to my 401k so that I can max it out for the year. I was working overseas and wasn't able to contribute to retirement for the past 2 years. I figure this is good planning because it will lower our tax base for 2019, set the money aside for the future, etc. We should have no problem affording this with DH's salary, and if it is difficult, we can tighten our belts until the end of the year. I just wanted to ask if there is anything I'm overlooking in proceeding this way? Thanks!

RollingGreen

  • 5 O'Clock Shadow
  • *
  • Posts: 41
Re: Starting new jobs--directing as much as possible to 401k to max out
« Reply #1 on: September 05, 2019, 12:32:26 PM »
Well, as federally determined, the most you can put into your 401(k) in 2019 is $19,000, correct? Then you can have an IRA of up to $6,000. Everything afterwards would be in different accounts.

Sent from my SM-N950U using Tapatalk


therethere

  • Pencil Stache
  • ****
  • Posts: 768
Re: Starting new jobs--directing as much as possible to 401k to max out
« Reply #2 on: September 05, 2019, 02:08:55 PM »
You should ask how the company match is applied. If it is applied every paycheck and you hit 19k before the last paycheck you could miss out on a portion of the company match if they don't do a true up at the end of the year. Some companies may also have a have a maximum you can contribute, mine is 30%.

MDM

  • Walrus Stache
  • *******
  • Posts: 9808
Re: Starting new jobs--directing as much as possible to 401k to max out
« Reply #3 on: September 05, 2019, 02:29:47 PM »
Some companies may also have a have a maximum you can contribute, mine is 30%.
Unfortunate but true.  The company-imposed maximum percentage helps practically nobody, but some companies do have them.

PDXTabs

  • Handlebar Stache
  • *****
  • Posts: 1342
  • Age: 36
  • Location: Portland, OR, USA
Re: Starting new jobs--directing as much as possible to 401k to max out
« Reply #4 on: September 05, 2019, 05:23:08 PM »
Some companies may also have a have a maximum you can contribute, mine is 30%.
Unfortunate but true.  The company-imposed maximum percentage helps practically nobody, but some companies do have them.

Well, it depends what it is. My old company was 50% which wasn't too bad. My wife's company says 87% just so that they can make sure to have enough left for payroll, benefits, etc.

MDM

  • Walrus Stache
  • *******
  • Posts: 9808
Re: Starting new jobs--directing as much as possible to 401k to max out
« Reply #5 on: September 05, 2019, 05:28:55 PM »
My old company was 50% which wasn't too bad.  My wife's company says 87% just so that they can make sure to have enough left for payroll, benefits, etc.
Question remains "who benefits from a company limit less than '100% of whatever is left after mandatory subtractions (FICA, garnishing, etc.)'?

AFAIK, the answer is "nobody" (apart from the fat-fingered living paycheck-to-paycheck who entered 60% when meaning to enter 6%).

PDXTabs

  • Handlebar Stache
  • *****
  • Posts: 1342
  • Age: 36
  • Location: Portland, OR, USA
Re: Starting new jobs--directing as much as possible to 401k to max out
« Reply #6 on: September 05, 2019, 05:33:37 PM »
Question remains "who benefits from a company limit less than '100% of whatever is left after mandatory subtractions (FICA, garnishing, etc.)'?

AFAIK, the answer is "nobody" (apart from the fat-fingered living paycheck-to-paycheck who entered 60% when meaning to enter 6%).

HR, because every company I have ever worked for had your 401k contribution set as a percentage of your gross salary. So you go into a web form and type 100% and then someone in HR has to actually deal with the fact that your paycheck is going to be negative.

Travis

  • Magnum Stache
  • ******
  • Posts: 2707
  • Location: South Korea
Re: Starting new jobs--directing as much as possible to 401k to max out
« Reply #7 on: September 05, 2019, 05:39:40 PM »
My old company was 50% which wasn't too bad.  My wife's company says 87% just so that they can make sure to have enough left for payroll, benefits, etc.
Question remains "who benefits from a company limit less than '100% of whatever is left after mandatory subtractions (FICA, garnishing, etc.)'?

AFAIK, the answer is "nobody" (apart from the fat-fingered living paycheck-to-paycheck who entered 60% when meaning to enter 6%).

My wife's last company allowed up to 90% of the paycheck and they called and asked "Are you sure you didn't mean 10%?"

To the OP:  no idea how much you'll be making and there's only a few months left in the year, but go for it.  Check on the true-up status of your 401k plan.  Do the math for next calendar year and if they don't do a true-up make sure you spread your contributions out to capture each month of the year to get the match.  if you haven't filled up your IRA yet for 2019, you actually have until April 2020 to catch up while contributing to your 2020 IRA at the same time.

MDM

  • Walrus Stache
  • *******
  • Posts: 9808
Re: Starting new jobs--directing as much as possible to 401k to max out
« Reply #8 on: September 05, 2019, 06:04:08 PM »
Question remains "who benefits from a company limit less than '100% of whatever is left after mandatory subtractions (FICA, garnishing, etc.)'?

AFAIK, the answer is "nobody" (apart from the fat-fingered living paycheck-to-paycheck who entered 60% when meaning to enter 6%).

HR, because every company I have ever worked for had your 401k contribution set as a percentage of your gross salary. So you go into a web form and type 100% and then someone in HR has to actually deal with the fact that your paycheck is going to be negative.
Assuming HR exists to help employees, HR doesn't count. ;)

Of course, if HR exists to help HR and screw the employees, then....

argentstache

  • 5 O'Clock Shadow
  • *
  • Posts: 15
Re: Starting new jobs--directing as much as possible to 401k to max out
« Reply #9 on: September 06, 2019, 06:57:34 AM »
My old company was 50% which wasn't too bad.  My wife's company says 87% just so that they can make sure to have enough left for payroll, benefits, etc.
Question remains "who benefits from a company limit less than '100% of whatever is left after mandatory subtractions (FICA, garnishing, etc.)'?

AFAIK, the answer is "nobody" (apart from the fat-fingered living paycheck-to-paycheck who entered 60% when meaning to enter 6%).

My wife's last company allowed up to 90% of the paycheck and they called and asked "Are you sure you didn't mean 10%?"

To the OP:  no idea how much you'll be making and there's only a few months left in the year, but go for it.  Check on the true-up status of your 401k plan.  Do the math for next calendar year and if they don't do a true-up make sure you spread your contributions out to capture each month of the year to get the match.  if you haven't filled up your IRA yet for 2019, you actually have until April 2020 to catch up while contributing to your 2020 IRA at the same time.

Thanks. This is super helpful. We have never contributed to IRAs b/c we have always been above the tax favorable limit, but I'm thinking it will make sense to do so this year. So I will do that as well. 

TomTX

  • Magnum Stache
  • ******
  • Posts: 3783
  • Location: Texas
Re: Starting new jobs--directing as much as possible to 401k to max out
« Reply #10 on: September 07, 2019, 06:18:56 AM »
Some companies may also have a have a maximum you can contribute, mine is 30%.
Unfortunate but true.  The company-imposed maximum percentage helps practically nobody, but some companies do have them.

Well, it depends what it is. My old company was 50% which wasn't too bad. My wife's company says 87% just so that they can make sure to have enough left for payroll, benefits, etc.

My employer will (upon request) calculate a "zero balance check" for you and let you know exactly how much you can put into the 401k with a given paycheck (within a dollar anyway.)

TomTX

  • Magnum Stache
  • ******
  • Posts: 3783
  • Location: Texas
Re: Starting new jobs--directing as much as possible to 401k to max out
« Reply #11 on: September 07, 2019, 06:21:07 AM »

Thanks. This is super helpful. We have never contributed to IRAs b/c we have always been above the tax favorable limit, but I'm thinking it will make sense to do so this year. So I will do that as well.

You probably could have benefited from the Backdoor Roth.

Make nondeductible Traditional IRA contribution.
Convert to Roth IRA.
Pay income tax on any gains. No tax on the contribution, because it was nondeductible.

This can get complicated if you already have money in a Traditional IRA due to pro rata rules, so go look up the details. The usual solution is to first roll any other IRA money into a 401k.

argentstache

  • 5 O'Clock Shadow
  • *
  • Posts: 15
Re: Starting new jobs--directing as much as possible to 401k to max out
« Reply #12 on: September 09, 2019, 10:33:28 AM »

Thanks. This is super helpful. We have never contributed to IRAs b/c we have always been above the tax favorable limit, but I'm thinking it will make sense to do so this year. So I will do that as well.

You probably could have benefited from the Backdoor Roth.

Make nondeductible Traditional IRA contribution.
Convert to Roth IRA.

Is there a link for a primer on a backdoor Roth? I have never focused on this and probably should. I know there have been extensive discussions. I can do a search, but if anyone has a quick link, I'd appreciate it.

Pay income tax on any gains. No tax on the contribution, because it was nondeductible.

This can get complicated if you already have money in a Traditional IRA due to pro rata rules, so go look up the details. The usual solution is to first roll any other IRA money into a 401k.

MDM

  • Walrus Stache
  • *******
  • Posts: 9808
Re: Starting new jobs--directing as much as possible to 401k to max out
« Reply #13 on: September 09, 2019, 10:38:54 AM »
Is there a link for a primer on a backdoor Roth? I have never focused on this and probably should. I know there have been extensive discussions. I can do a search, but if anyone has a quick link, I'd appreciate it.
Perhaps Backdoor Roth - Bogleheads?

Mellow Mallow

  • 5 O'Clock Shadow
  • *
  • Posts: 68
  • Location: Australia
Re: Starting new jobs--directing as much as possible to 401k to max out
« Reply #14 on: September 15, 2019, 12:39:45 AM »
Mad Fientist has a blog post about why he frontloaded his 401k: https://www.madfientist.com/front-loading/