Author Topic: Where to Put Year End Bonus - Company 401K not an option  (Read 1502 times)

jeff2017

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Where to Put Year End Bonus - Company 401K not an option
« on: December 12, 2017, 10:17:54 AM »
So happy to have found this forum. Trying to determine the best suggestion(s) for my DG's end of year situation/bonuses.

Her total compensation for 2017 will include a salary of $60,333 + $2,000 year end bonus + $7,500 year end bonus = $69,833. She has been deferring 9% to the company's 401K (with a 3% match). She has a bit of an unexpected $7,500 bonus coming at end of year as well as a $2,000 bonus for performance related work.

She would like to save more this month through the 401K with the bonuses coming in, and her 401K is a good Vanguard option which is great. The problem is that it might be a bit too late to change her 401K deferral options. She is paid twice per month and was not able to make any changes in time for the first half of December and is checking into if she can defer 100% of the last payroll, but she found out that the max she could defer is 75% and that the change would NOT go into effect until January.

What would be the best option(s) for her?
« Last Edit: December 12, 2017, 10:21:49 AM by jeff2017 »

seattlecyclone

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Re: Where to Put Year End Bonus - Company 401K not an option
« Reply #1 on: December 12, 2017, 10:44:02 AM »
An IRA is always a great option if she hasn't already maxed one out for this year. Another option is to live off the bonus money while deferring 75% into the 401(k) during the first part of next year.

Keep in mind that fully maxing out the 401(k) early in the year may result in a lower match. Many companies only match based on how much you contribute during each particular pay period. If you use up all the contribution space early in the year, you lose all the match you could have gotten later.

Psychstache

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Re: Where to Put Year End Bonus - Company 401K not an option
« Reply #2 on: December 12, 2017, 11:18:34 AM »
Cash it out as $1 bills, purchase a blow up pool, and go all Scrooge McDuck on that sweet bonus.

Or open an IRA with Vanguard and buy VTSAX. Seems less fun, but most people around here would opt for that.

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jeff2017

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Re: Where to Put Year End Bonus - Company 401K not an option
« Reply #3 on: December 12, 2017, 12:44:24 PM »
Update: So she found she CAN defer 75% of the salary, so for the final 26th pay period, this would be 62,000 /26 = $2,384 * .75 = $1,788.

One other item she already knew is she CANNOT defer any part of a bonus, so I guess the only other option in addition to the $2,384 would be to open an IRA?

Babybalrog

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Re: Where to Put Year End Bonus - Company 401K not an option
« Reply #4 on: December 12, 2017, 12:47:35 PM »
IRA, just like a 401k.

Another alternative is to pay off any big debts she still has.

MDM

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Re: Where to Put Year End Bonus - Company 401K not an option
« Reply #5 on: December 12, 2017, 12:52:20 PM »
Update: So she found she CAN defer 75% of the salary, so for the final 26th pay period, this would be 62,000 /26 = $2,384 * .75 = $1,788.

One other item she already knew is she CANNOT defer any part of a bonus, so I guess the only other option in addition to the $2,384 would be to open an IRA?
Depending on the expense ratios, the IRA might be even better than the 401k for amount above the company match.  See Investment Order for more.

jeff2017

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Re: Where to Put Year End Bonus - Company 401K not an option
« Reply #6 on: December 12, 2017, 04:34:36 PM »
Thanks everyone