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Investing a lump sum "into" your 401k
Posted on 5/15/20 at 10:20 pm
Posted on 5/15/20 at 10:20 pm
Let's say you have a lump sum of money you're looking to invest. First move you've taken is to max out your Roth IRA contribution, and you still have leftover that you'd like to invest. Primary investment goal is retirement (30 years give or take), so tax advantaged account is preferred.
Would it make sense to crank up your 401k contributions to the maximum, and live off your savings until you reach the contribution limit? So basically your paycheck is just being deposited into your 401k (up to the max contribution amount) while you draw out of savings for all of your living expenses?
Assuming no debt or anything like that, and your emergency fund is already taken care of...you just have purely discretionary funds to play with. Based on my research, "draining" your savings while beefing up your 401k contributions would be the logical thing to do, but I'm just wondering if I'm missing something in that line of thinking, or if there's a more practical investment strategy for the remaining lump sum.
Thank y'all in advance
Would it make sense to crank up your 401k contributions to the maximum, and live off your savings until you reach the contribution limit? So basically your paycheck is just being deposited into your 401k (up to the max contribution amount) while you draw out of savings for all of your living expenses?
Assuming no debt or anything like that, and your emergency fund is already taken care of...you just have purely discretionary funds to play with. Based on my research, "draining" your savings while beefing up your 401k contributions would be the logical thing to do, but I'm just wondering if I'm missing something in that line of thinking, or if there's a more practical investment strategy for the remaining lump sum.
Thank y'all in advance
3
Posted on 5/15/20 at 11:20 pm to OzarksTiger
quote:
Would it make sense to crank up your 401k contributions to the maximum, and live off your savings until you reach the contribution limit? So basically your paycheck is just being deposited into your 401k (up to the max contribution amount) while you draw out of savings for all of your living expenses?
If you want to get the money in the market as quick as you can, yes. Otherwise, I’d spread it out over the rest of the year’s paychecks so that you hit the max in December.
Either way, yes, take a lower paycheck and draw down on savings.
Posted on 5/16/20 at 1:41 am to OzarksTiger
Be careful not to max 401k too early in year. You might miss out on months of company match.
This post was edited on 5/16/20 at 12:24 pm
Posted on 5/16/20 at 1:47 am to TorchtheFlyingTiger
You miss out on company match, and the max is only 19.5k this year. Not exactly enough money to have to live off savings.
Posted on 5/16/20 at 10:00 am to TorchtheFlyingTiger
quote:
He careful not to max 401k too early in year. You might miss out on months of company match
This is not accurate for me. My company matches up to 4% of my salary. So whether I max out in July or I max out in December, I still get 4% of my salary, dropped in to 401k at end of the year. I do, however, work for a private company, and I am sure that is the difference. Just illustrating there could be different 401k scenarios.
Posted on 5/16/20 at 2:40 pm to TorchtheFlyingTiger
quote:this. You need to triple check that your company has a true-up payment at the end of the year. If not, then, you’ll miss out
You might miss out on months of company match
Posted on 5/16/20 at 2:59 pm to iluvredboxx
quote:He said might. Because it depends on the company. Definitely something he needs to check.
This is not accurate for me.
Posted on 5/17/20 at 9:24 am to OzarksTiger
I felt I was behind on my 401K for my age, so contributed about 75% of my checks for the first 4 months to max out at 19.5K this yr. Ended up being a bad thing bc a lot of the contributions was at market highs.
Might not matter much 20yrs from now.
Might not matter much 20yrs from now.
Posted on 5/17/20 at 1:20 pm to TorchtheFlyingTiger
You can put taxed money in your account, no?
Posted on 5/17/20 at 6:09 pm to AUCE05
quote:
You can put taxed money in your account, no?
in the roth, yes. in the 401k? not sure why?? get taxed twice?
Posted on 5/17/20 at 6:10 pm to iluvredboxx
quote:
This is not accurate for me. My company matches up to 4% of my salary. So whether I max out in July or I max out in December, I still get 4% of my salary, dropped in to 401k at end of the year. I do, however, work for a private company, and I am sure that is the difference. Just illustrating there could be different 401k scenarios.
Same for me, i try to max out by october, that way i have a little extra in the checks for hunting season and christmas.
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