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401k - Max in January or average throughout year
Posted on 12/27/17 at 9:40 am
Posted on 12/27/17 at 9:40 am
We receive bonuses in January. I generally max my 401k every year and plan to in 2018. Any suggestions/thoughts on directing a portion of the bonus to max my 401k in January as opposed to taking the bonus 100% subject to income tax and averaging into my 401k over 24 pay periods?
Since this is money I won't see for 30+ years, I assume the long-term difference will be minimal, but with the market set to run in 2018 on this corporate tax restructuring, I'm leaning towards a January funding of my 401k.
Since this is money I won't see for 30+ years, I assume the long-term difference will be minimal, but with the market set to run in 2018 on this corporate tax restructuring, I'm leaning towards a January funding of my 401k.
5
Posted on 12/27/17 at 9:51 am to Wade Phillips
If you're going to max either way, I'd go ahead and put it all in there in January. There's no real math differences either way, but it'll be done, and you'll have 18k in the market in January not $750/ pay period.
Posted on 12/27/17 at 9:54 am to Mingo Was His NameO
If you max your 401K for 30 years, you will retire a multi millionaire.
I do not understand why people do not realize this.
I do not understand why people do not realize this.
Posted on 12/27/17 at 9:56 am to YoungManOldMan
quote:
If you max your 401K for 30 years, you will retire a multi millionaire.
I do not understand why people do not realize this.
Because a lot of people don't have an extra 18k laying around.
Posted on 12/27/17 at 10:29 am to YoungManOldMan
Even if you don’t max you become a millionaire as long as you routinely contribute. I know someone that didn’t start until his mid 30’s and saved 12-15 percent of his check into a 401k and came away with over 1.4 million after 28 years.
Posted on 12/27/17 at 10:36 am to Wade Phillips
One thing to consider is your company's matching contribution(assuming you have one). Some employers will match a certain % of each paycheck up to a max. If you decide to cap out of 401k contributions in January, you may be missing out on some of the company match. You would need to check with your plan.
This is also leaving out the fact you're investing all at one price point. This is done at an increased risk, which can be reduced by dollar-cost-averaging over the course of the year.
This is also leaving out the fact you're investing all at one price point. This is done at an increased risk, which can be reduced by dollar-cost-averaging over the course of the year.
Posted on 12/27/17 at 10:51 am to Wade Phillips
If your company matches, you will lose out on that money the other 20-22 periods where you aren't contributing. Depending on your plan, that could more than offset whatever tax savings you'd realize.
Posted on 12/27/17 at 11:10 am to Oenophile Brah
Some plans require funds be contributed only through payroll deduction and exclude bonuses from matches. You could lose all of your matching funds beyond the first payday. Then, in annual testing later, you could get some of the matching in a correction. But, if your plan excludes those funds or requires payroll deduction, you lose.
Posted on 12/27/17 at 4:36 pm to GRTiger
quote:
If your company matches, you will lose out on that money the other 20-22 periods where you aren't contributing.
It depends on the 401k plan. Plans can have the "true up" feature which would let you get the full match even if you didn't contribute every pay check. If the plan has that, then it doesn't matter if you maxed out early or started late in the year.
Also, true up will help you if you didn't contribute enough in some pay periods to get the full match, but made higher contributions above the full match in other pay periods.
My last two 401k plans had the true up feature.
This post was edited on 12/27/17 at 4:45 pm
Posted on 12/27/17 at 5:35 pm to GRTiger
quote:
If your company matches, you will lose out on that money the other 20-22 periods where you aren't contributing. Depending on your plan, that could more than offset whatever tax savings you'd realize.
I came here to say this. My company follows this policy, but it wasn't apparent in any of the plan documents. Talk to your 401k admin if you have a match before you pull the trigger on this strategy.
Posted on 12/28/17 at 8:25 am to Wade Phillips
I appreciate those who raised the issue of company match. I asked our benefits admin and they said it won't affect our match.
Now the question is whether or not to Roth. I know the 2018 tax rates will change starting in February. Wondering if I max out in January, will I be able to recapture the tax change at the end of the year?
Now the question is whether or not to Roth. I know the 2018 tax rates will change starting in February. Wondering if I max out in January, will I be able to recapture the tax change at the end of the year?
Posted on 12/28/17 at 9:31 am to Wade Phillips
You need to leave enough to be withdrawn per paycheck to receive the match or else you will miss out on it. That is the way it is here anyway, I assume it is the same everywhere.
Posted on 12/28/17 at 10:50 am to TimeOutdoors
You'd assume wrong
Posted on 12/28/17 at 3:06 pm to Wade Phillips
The new tax rates are effective Jan 1 2018. Not sure what you mean?
Posted on 12/28/17 at 3:25 pm to sneakytiger
quote:
The new tax rates are effective Jan 1 2018. Not sure what you mean?
I understood that paychecks wouldn't reflect the changing rates until February. So if my employer's system still withholds at old rates, I'm wondering if I'm able to recapture the tax difference from a Roth deposit on my 2018 tax returns or otherwise. I'm sure I am not framing the issue well, but if I'm paying 28% rate on a Roth 401K max out in January, which withholding would be taxed at a rate of 24% in March, when/how would I be able to recoup that delta?
This post was edited on 12/28/17 at 3:26 pm
Posted on 12/28/17 at 3:30 pm to gpburdell
I never considered That you could miss out on some of the match if you max early. My wife and I both max and we always hit it before the nd of the year. Both of our accounts are adjusted on a percentage basis, not a dollar per check basis. This would be extremely difficult to hit right on $18k going off percentages since we are both paid commission heavy.
I’ve been thinking about maxing when I get my bonus check in Feb.
I’ve been thinking about maxing when I get my bonus check in Feb.
Posted on 12/29/17 at 11:39 am to Wade Phillips
You'd get it back when you file your 2018 federal return, at the latest. You could probably elect to change your withholding during the year to recoup earlier.
This post was edited on 12/29/17 at 11:41 am
Posted on 1/23/18 at 6:24 pm to TitleistProV1X
Never realized that some companies would actually stop the match if you max it out before the end of the year until I read this article this afternoon.
LINK
I've confirmed that my company does not do this. Not sure what percentage of companies actually penalize you for maxing it out early.
LINK
I've confirmed that my company does not do this. Not sure what percentage of companies actually penalize you for maxing it out early.
Posted on 1/23/18 at 7:26 pm to LSU
Wow. Now that is interesting. Thanks for sharing.
Posted on 1/23/18 at 11:02 pm to YoungManOldMan
quote:
If you max your 401K for 30 years, you will retire a multi millionaire.
I do not understand why people do not realize this.
Because some people would rather live life now than be a millionaire when they are 72 and then try to live life then.
I remember listening to Dave Ramsey years ago. All of these people called in wanting him to tell them to save everything for retirement. Dave said that he knew many people that did exactly that but never lived to reach retirement.
I have had the good fortune of putting plenty into retirement, but I still balanced it with trips to Bora Bora, Mallorca, Cabo, Cancun, Europe, etc. I would rather have those experiences now than when I am in my 70s.
Plus, with the rate that our deficit is going, income tax percentages maybe be so high that most of your 401k may go toward taxes.
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