Just maxed out my 401k for the year

[ian055]

This is the 5th year in a row that I've maxed out my 401k. Next year I plan to front load my contributions so that I'm maxed out earlier in the year. I wish I had been doing this since I first started my career (2003). But I've been maxing out my Roth since 2005. :D

[ixtap]

Does your company match happen per paycheck, as you contribute, or with a true up at the end of the year? Don't want to miss out!

[MrsDinero]

Great job!

[ian055]

Does your company match happen per paycheck, as you contribute, or with a true up at the end of the year? Don't want to miss out!

Unfortunately, they don't match and to make things worse the fees in my plan are ridiculous (.25%), which is why it took me so long to start really contributing let alone maxing it out. My previous company did match 50% of the first 6%, then 25% from 10-15%(of the contribution). I think there I was only doing 12%.

[Duke03]

Good Job.  I max my 401k out every year also, but I just spread it out so it doesn't max till mid Dec.  I currently max out two pensions and a 401k.  I was hoping this year I'd be able to max out my IRA also, but.... we've had some surprise expenses totaling about 10k.  I could pull from my emergency fund to make it happen....but probably won't.   Of course the year isn't over yet, but with property taxes Christmas and all the insurance due in December it's tough.

[ian055]

Good Job.  I max my 401k out every year also, but I just spread it out so it doesn't max till mid Dec.  I currently max out two pensions and a 401k.  I was hoping this year I'd be able to max out my IRA also, but.... we've had some surprise expenses totaling about 10k.  I could pull from my emergency fund to make it happen....but probably won't.   Of course the year isn't over yet, but with property taxes Christmas and all the insurance due in December it's tough.

Thanks...I'm assuming your IRA is a Roth. You could use some of that emergency fund and fund the Roth to max it out. Since you can withdraw your contributions/principle whenever you want penalty free, you'd be able to get that money back in case of a real emergency. I've never really had an emergency fund or true savings account. I figured worst case scenario, I pull some principle out of my Roth. Fortunately, I haven't had to do that, but if I did, I know it would be ok to do.

[ItsALongStory]

Great job, it's still arguably the most solid basis for a successful retirement plan especially when there is some sort of match.

I think I have 2.3 more paychecks before it's maxed out as well. My employer matches 50c on the dollar up to the annual max so that's a very sweet deal allowing me to max out early should I choose to leave my current employer.

[soccerluvof4]

Great Job! thats what I did that last 4 five years and took advantage of he catch-up as well before going into Fire

[Mississippi Mudstache]

Good Job.  I max my 401k out every year also, but I just spread it out so it doesn't max till mid Dec.  I currently max out two pensions and a 401k.  I was hoping this year I'd be able to max out my IRA also, but.... we've had some surprise expenses totaling about 10k.  I could pull from my emergency fund to make it happen....but probably won't.   Of course the year isn't over yet, but with property taxes Christmas and all the insurance due in December it's tough.

Thanks...I'm assuming your IRA is a Roth. You could use some of that emergency fund and fund the Roth to max it out. Since you can withdraw your contributions/principle whenever you want penalty free, you'd be able to get that money back in case of a real emergency.

Two points to make here:

1) Why would you assume that it's a Roth IRA? Most early retirees would benefit more from a traditional IRA than a Roth.

2) Making early withdrawals from a Roth IRA is a huge pain in the rear when tax time comes. You'd better be keeping pristine records if you intend to use your Roth as an emergency account. I pulled about $15,000 out of a Roth last year to make a down payment on our house, and it added many frustrating hours to my tax filing. I don't ever plan to make another early Roth withdrawal until I retire.

[ian055]

Two points to make here:

1) Why would you assume that it's a Roth IRA? Most early retirees would benefit more from a traditional IRA than a Roth.

2) Making early withdrawals from a Roth IRA is a huge pain in the rear when tax time comes. You'd better be keeping pristine records if you intend to use your Roth as an emergency account. I pulled about $15,000 out of a Roth last year to make a down payment on our house, and it added many frustrating hours to my tax filing. I don't ever plan to make another early Roth withdrawal until I retire.

1) Because he's maxing out his 401k, I figured he'd be phased out of the tax deductions on his traditional IRA contributions.
2) Can't be that hard to keep track of what you put into a Roth account if you're maxing it out every year, if you're not spreading it out over multiple accounts.

[coldestcat]

My wife has been asking about maxing out a 401k earlier in the year rather than just set it so it hits max the last month of the year. I cant really think of pros or cons to this rather than it just seems like more work changing it then changing it again after hitting max.

[ian055]

My wife has been asking about maxing out a 401k earlier in the year rather than just set it so it hits max the last month of the year. I cant really think of pros or cons to this rather than it just seems like more work changing it then changing it again after hitting max.

My company automatically stops contributing after I've hit the cap. So I don't need to change the %. I didn't find this out until a few years ago. As for Pros and Cons...Pros:  more of your money is working for you sooner; if you're planning on leaving your job mid year, it helps. Cons: if you're worried about the market drops and dollar cost averaging, then front loading isn't ideal. I can't really think of anything else.

[Systems101]

My company automatically stops contributing after I've hit the cap. So I don't need to change the %. I didn't find this out until a few years ago. As for Pros and Cons...Pros:  more of your money is working for you sooner; if you're planning on leaving your job mid year, it helps. Cons: if you're worried about the market drops and dollar cost averaging, then front loading isn't ideal. I can't really think of anything else.

It depends if there is a true-up and the conditions on it.  Some plans you will reduce the total match if you front-load, since you are not matching anything after you hit the cap; others do a true-up at the end of the year (usually early January of the following year) to ensure you still get the 6% match even if you front loaded.  I've worked for both types of companies. Of course, some of the true-ups require you to still be an employee, so front loading and then leaving late in the year (voluntarily or involuntarily) can result in a loss of money.

There are some other nuances.  If you are doing large post-tax contributions the true-up formulas can get messed up or prohibited; it will depend exactly on when the true-up occurs and the tax year in which the true-up is placed by your employer.  I'd advise that the naive implementation should be balanced across the year; front-loading is for folks who have read and fully understand the plan description for their 401(k), so they know they aren't cheating themselves, because there are certainly plans where you can shoot yourself in the foot by front-loading.

[PhrugalPhan]

My wife has been asking about maxing out a 401k earlier in the year rather than just set it so it hits max the last month of the year. I cant really think of pros or cons to this rather than it just seems like more work changing it then changing it again after hitting max.

If your employer cuts you off when you hit the max...then there's nothing to do.  Mine does that as I got my max being hit in August (extra large paychecks for 4 months are great let me tell ya..) and we don't get a match so why not?

As to why do it... the market is more likely to go up than down, so more time invested should increase your investments.  I've been doing this since 2007 and probably have an extra $25k just from doing this.  Some years using this option has been great (2009 was amazing).

[HAPPYINAZ]

Two points to make here:

1) Why would you assume that it's a Roth IRA? Most early retirees would benefit more from a traditional IRA than a Roth.

2) Making early withdrawals from a Roth IRA is a huge pain in the rear when tax time comes. You'd better be keeping pristine records if you intend to use your Roth as an emergency account. I pulled about $15,000 out of a Roth last year to make a down payment on our house, and it added many frustrating hours to my tax filing. I don't ever plan to make another early Roth withdrawal until I retire.

1) Because he's maxing out his 401k, I figured he'd be phased out of the tax deductions on his traditional IRA contributions.
2) Can't be that hard to keep track of what you put into a Roth account if you're maxing it out every year, if you're not spreading it out over multiple accounts.

Not sure what you mean in the above bolded section?  I max out my 401K and my traditional IRA every year....as I understand it contributing to one does not mean you can't contribute to the other. 

[Road2Freedom]

This is the 5th year in a row that I've maxed out my 401k. Next year I plan to front load my contributions so that I'm maxed out earlier in the year. I wish I had been doing this since I first started my career (2003). But I've been maxing out my Roth since 2005. :D

Congrats!  I technically maxed mine out (within about $20) after the last period for the first time as well.  My company won't let you input a specific dollar amount and you can only pick a whole %, I figure it is better to be a little short than dealing with an overage.  Was also weird switching it to zero this last pay period.

[ian055]

Not sure what you mean in the above bolded section?  I max out my 401K and my traditional IRA every year....as I understand it contributing to one does not mean you can't contribute to the other.

You can. But from what I understand if you have a employee retirement plan, your ability to deduct your traditional ira contributions get phased out after a certain MAGI. This is why I just contribute to a roth after maxing out my 401k.

https://www.irs.gov/retirement-plans/plan-participant-employee/2018-ira-contribution-and-deduction-limits-effect-of-modified-agi-on-deductible-contributions-if-you-are-covered-by-a-retirement-plan-at-work

[ProxyRetired]

Awesome work!