Maxed my 401k for the year

[disneysteve]

As of this week's paycheck, I've maxed my 401k for 2020. Going forward, I'll continue to contribute the same amount (13%) but into our taxable account instead. I already sent in the balance from this paycheck to Vanguard.

[bjl584]

nice. congrats

[Like2Plan]

[kork13]

Does that include the catch up contribution as well?

It's definitely a nice pat on the back to see the retirement accounts get maxed out. Congrats!

[disneysteve]

Does that include the catch up contribution as well?

Yes. 26K total.

[Scallywag]

Yes. 26K total.

You da man, Steve!

Jokes aside, you just motivated me to max out our 401K next year. We usually do ROTH IRAs but never the 401K, esp as we're also saving up for a downpayment on a home. But next year, we just might! Wish us luck!

[QuarterMillionMan]

Not to be a Debbie downer but maxing out too early has some downside. 1) Don't you miss out on the match for the remaining months of the year? 2) By maxing out too early don't you now miss out on the tax deferral for the remaining months of the year? In effect now you'll be paying more taxes for the remaining months of the year. However maxing out early is better than the alternative of not maxing out. I'm on track to max out in December. It is hard to time it correctly IMHO, but good job DS.

[Jluke]

1) maybe. The employer could do a true-up. There is no match.

2) you can only defer 19.5k or 26k (catch-up).

a boglehead would say “time in market” but would ensure the full employer match, if any, is captured.

it is VERY easy to plan this (for me). This year an added wrinkle was an extra paycheck (27 instead of 26) and I need to contribute at least 6% every pay to get the employer match (no true up)

[~bs]

Not to be a Debbie downer but maxing out too early has some downside. 1) Don't you miss out on the match for the remaining months of the year? 2) By maxing out too early don't you now miss out on the tax deferral for the remaining months of the year? In effect now you'll be paying more taxes for the remaining months of the year. However maxing out early is better than the alternative of not maxing out. I'm on track to max out in December. It is hard to time it correctly IMHO, but good job DS.

depends on how the employer plan is setup. if it's a % up to a % of pay, you conceivably could get the match all at once.

As far as timing of when to contribute, it really depends. If you front load, you risk missing dollar cost averaging thru the year, but you can still invest in taxable accounts steadily through the year. My boss chooses to max his 401k contribution on the first paycheck of the year, to "get it out of the way". I choose to DCA thru the year unless there's a market crash, then I'll try to accelerate my contributions during the low market. (not supposed to market time, I know).

[disneysteve]

I've never entirely understood the "miss out on the match" part. If the match is 50% of my contributions of up to 6% of my salary, why would it matter?

I don't know that there's any difference tax-wise because no matter what, I'm putting in 26K and deferring taxes on 26K whether that happens in January, October, or December.

Timing it perfectly is hard because I do work the occasional extra shift so my income varies a bit. If I work several extra shifts early in the year, I could max out a lot earlier. All things considered, maxing out at the end of October is pretty good. And as far as DCA, I did it over 10 months which is also good IMO.

[corn18]

My match is 100% of 6%. But if I only withhold 6% of my salary, I will not hit $19,500 by the end of the year. My ideal withholding would be 6.75%. That would put me @ $19,500 withholding at the end of the year. My plan only allows for full % withholding, so I have to withhold 7%. I miss out on a bit of matching. If I withheld 10%, I would miss out on a lot of match. The ideal situation if your plan does not have a true up option is to hit $19,500 on your last paycheck of the year.

[~bs]

My match is 100% of 6%. But if I only withhold 6% of my salary, I will not hit $19,500 by the end of the year. My ideal withholding would be 6.75%. That would put me @ $19,500 withholding at the end of the year. My plan only allows for full % withholding, so I have to withhold 7%. I miss out on a bit of matching. If I withheld 10%, I would miss out on a lot of match. The ideal situation if your plan does not have a true up option is to hit $19,500 on your last paycheck of the year.

I actually had no idea some plans dont have true up options. it makes no sense. But all different, I suppose.

[LivingAlmostLarge]

how can you tell if you have a true up option? DH maxes out his 401k by march. We get hit from bonuses hitting in Feb stock and cash. We finish SS max out as well.

[Like2Plan]

I've never entirely understood the "miss out on the match" part. If the match is 50% of my contributions of up to 6% of my salary, why would it matter?..

Suppose you make a 6% contribution of your salary-- the company would post an additional 3% per pay. Easy to follow.
But, suppose you make a 13% contribution. Does your company put in an additional 6.5% match (until you've reached the annual 3% total)? Or, does the company put in the usual 3%?

Using the example above for the max match--the way it works for some 401k's is they only pay (up to) the 3% per pay. If you make 0 contributions, they match 0%. Some plans will go back and do a "true up" in case you max out early.

[Like2Plan]

how can you tell if you have a true up option? DH maxes out his 401k by march. We get hit from bonuses hitting in Feb stock and cash. We finish SS max out as well.

It should be in the plan documents. But, if you have been contributing for a while--you can go back and calculate what they have been putting in for the match to see if it totals what it should be.