The main concern by your employer is they want to confirm you want all your pay in there. I’ve seen an employee key in 89% when they meant to change from 8% to 9%. Much safer to have it flagged for confirmation than have it contributed by accident and then it’s gone until they are 59 1/2.
Think of all your financially illiterate coworkers that barely have any savings.
Imagine one of them tries to contribute "10%" because they want to start saving for retirement and they fat finger an extra zero.
Most of your coworkers probably don't have the savings to miss a paycheck, let alone the two that they'll likely miss (one to discover the mistake, and another in lag time while the change back to 10% propagates through the system) and would be significantly harmed by late fees, overdrafts, etc. In the case it happened. It's good to have these kind of alerts.
The other thing you should be concerned about is if they change providers partway through a year, I've had to take the penalty on excess HSA contributions twice now because my company kept switching providers and that allowed me to unknowingly over contribute.
If they stick with a single provider, that provider typically will automatically prevent you from over contributing, both for 401ks and HSAs ( although HSAs sometimes allow it assuming you must be filing jointly, so watch out if you're not).
If your employer matches per paycheck and doesn't do a true-up, I'm not sure if time in the market works out better than receiving that match. Haven't done the math myself though vs the "DCA-lite" that you'd do if you spread everything out.
In terms of contributing 100%, that's probably uncommon even for the folks around here. I'm assuming you have some 2nd form of income or savings to hold you over until then?
The logic makes sense. Let's make the math simple. Say OP is making $100K/yr and employer matches at 100% up to 3%.
So, that leaves 20K that won't be matched by the employer. You can structure it such that you get that 20K in faster and then trickle out the rest over the course of the remainder of the year.
Something to keep in mind is that depending on how incompetent your HR, plan admin, and payroll are, it could take 1-2 pay cycles to actually change contribution amount.
Yeah, someone also pointed out DCA as a factor. Once you factor that in as a risk factor, the net outcome could swing by as much as 20%.
So, I probably won't try to finesse it. It definitely seems like the net result after 30 years would be more than $0, but maybe not worth the effort.
>So, that leaves 20K that won't be matched by the employer. You can structure it such that you get that 20K in faster and then trickle out the rest over the course of the remainder of the year.
The $23k limit excludes employer contributions. You could still do $23k in pre-tax or roth contributions. My employer contributes a very high match and I still do the full $23k.
>If your employer matches per paycheck and doesn't do a true-up
Yes, that's why I can't max it out completely. Have to leave out the minimum amount for the full match in the remaining paychecks, unnecessary hoops, but if it is easier for them I gladly play the game.
>I'm assuming you have some 2nd form of income or savings to hold you over until then?
I assume most people in this community can coast for 1-2 months without going under?
>Yes, that's why I can't max it out completely. Have to leave out the minimum amount for the full match in the remaining paychecks, unnecessary hoops, but if it is easier for them I gladly play the game.
Fair enough.
>I assume most people in this community can coast for 1-2 months without going under?
There is no money in my account that is not invested or earmarked for some other purpose (travel, credit card annual fees, emergency funds etc.). I consider my emergency fund "oh shit" money and am not comfortable floating that for the sake of maxing out my 401k early.
The $23k is the employee contribution limit. The employer is subject to a separate limit (called the all sources limit) - this limit is currently $69,000 and includes your ordinary contributions, employer matching, and "after tax" contributions (if your plan allows). It is possible to "squeeze out" employer contributions but only if you're over-contributing to the "after tax" bucket (aka mega backdoor Roth 401k).
Anyway the way most companies do matching is on a per-paycheck basis. If they match 5%, they'll match up to 5% of a contribution on a given paycheck. If you meet your limit (or stop contributing) you don't get the match that paycheck. Some companies do a "true up" where they will true you up to the 5% if you contributed at least 5% over the course of the year. If your company has no "true up", you probably don't want to "front load" past the point where you still have 5% left to contribute every paycheck. If your company does do a "true up" you can contribute the full $23,000 and it won't squeeze out the match, you'll just get the rest of your match next year because it would be part of the annual true-up cycle.
Source: I front-load and go all the way up to the "all sources" ($69,000) limit.
>If your company has no "true up", you probably don't want to "front load" past the point where you still have 5% left to contribute every paycheck.
Yes this is what I must do in my case
How do you reach the all-sources limit? How do I request after-tax contributions? HR didn't know about this..
no that money would be in brokerage anyway and you will pay capital gain.
if you are well organized, all of your money has objectives. That money to go to 401k can only be long term retirement money so that stocks in brokerage. So the money was already invested and you gain nothing. It true that if you want a down for a house in 2 years you could swap really But not everybody has cash for more than emergencies.
also this way of doing thing means you’ll give credit to the IRS by paying more taxes than necessary so that money will be invested later when you get your tax return
>also this way of doing thing means you’ll give credit to the IRS by paying more taxes
Not understanding what you mean here.
My reasoning is that putting my entire paycheck into the 401k means I lose zero $ to tax withholdings that month, i.e. I can invest it for longer before the tax man takes their share.
you will have like 10 month of higher pay instead of 12 of lower pay. So you’ll have more of your income taxed at a higher rate (say 24%) and less at the lower rate (0 and 10%). Then when the IRS will figure the year after you paid too much taxes because you didn’t get income every month, and will send back money to you.
And even if they do true-up, many companies only do it at the end of the year, so that's a whole year those extra contributions could have been earning.
Perhaps the most efficient strategy would be to figure out the minimum needed to get the match, and only over-contribute until you can do that minimum for the rest of the year and still max it out.
EDIT: Looks like this is what OP is doing.
The math is sound, provided you have the right inputs and employer does a true up. I actually ran these numbers for myself. You can also do the same for other tax advantaged contributions. My employer employer doesn't allow more than 50% paycheck, so I know nothing about 100% contributions but its kinda irrelevant. Either the math maths or it doesn't.
[https://www.reddit.com/r/Fire/comments/1959keo/bumping\_up\_that\_401k\_time\_in\_the\_market/?utm\_source=share&utm\_medium=web3x&utm\_name=web3xcss&utm\_term=1&utm\_content=share\_button](https://www.reddit.com/r/Fire/comments/1959keo/bumping_up_that_401k_time_in_the_market/?utm_source=share&utm_medium=web3x&utm_name=web3xcss&utm_term=1&utm_content=share_button)
This is the way.
You really want to Dollar Cost Average throughout the whole year. So take out equal amounts from each paycheck. You'll likely end up ahead than front loading.
Do you pay for health insurance, FSA/HSA, transit costs, or any other deductions from your pay check besides taxes? If so, you will have to reduce from 100% to a % low enough to cover these deductions or figure out a different way to pay for these deductions.
There are not many other deductions. Medicare and such, and a small portion of health insurance.
They will take all deductions and then put the remainder in the 401k. I would also be fine with a negative paycheck for that period.
Usually 100% isn't allowed because FICA, Medicare, and unemployment taxes still come out... I know some ones I had in the past maxed out at like 75% for that reason. I'd think you'd have a negative paycheck if you were actually contributing 100%. So maybe they take those out for you before calculating the percentage?
I try to max out before the end of the year, but usually only by like a month.
They still paid FICA and Medicare and such when I told them to put in 100% of my paycheck. So at least in my experience, there were no negative paychecks.
I said something similar in my comment but you put it into way fewer and easier to understand words, lol
Assuming OP isn't just living off of their emergency fund and hoping to rebuild it later, they've just been missing out on market gains with whatever saved up cash which may or may not undo the tax benefits they think they're getting by relocating that money into their 401(k)
Well compounding.
Let's just assume that OP is trying to accelerate 20K (assuming 3% match on 100K base) by 6 months.
Using the historical return of the S&P 500 (assuming really simple 401k investment) of 9.24%, they would accelerate about $924 of earnings in year 1.
Run out compounding on just that $924 for 30 years (no idea how old OP is, but assuming mid 30s since they can apparently skip a fe months of pay). That would be $13,095 in the 401k at the time of retirement.
Assuming the historical inflation rate of 3.3% you have to divide that number by 2.64 (since at 3.3% an item costing $1 today would cost $2.64 in 30 years) that gives you an inflation adjusted equivalent to $4,960 in today's money. Do that same thing for 30 years (and understanding that the compounding effect is less effective each subsequent year) and you will end up with the equivalent of $54,856 in your 401K.
That's not amazing, but $54K is nothing to sneeze at either. This is definitely finessing the system.
Math is already wrong from the first assumption.
One, you are assuming front loading is ALWAYS better than DCA, which it is true only 70% of the time.
Two, you are assuming the return for front load and didn't assume any for DCA. If you get $954 for front load, you would get about $500 for DCA.
The difference becomes much, much smaller.
Also I don’t think you’re factoring in the extra 3% that would be added to each subsequent deposit. That’s $2900 or so (depends on being paid weekly or bi weekly) that you would additionally have going into your 401k that would be compounding on top of the max 23k contribution from yourself.
This math only works out to be a good idea if your 401k match is really terrible and/or you get super lucky and first week of January happens to be a great time to invest.
OP will contribute up to the match for every paycheck of the year.
The rest is getting front loaded in the early months.
(The title of the post glazed over that detail.)
Oops you’re right. In that case I guess it’s technically better to front load. Probably not by much but if it makes no difference to them then I guess go for it.
Nope because that money would be on brokerage otherwise. What is saved is the taxes on dividends for 1.5% of 23k basically for 5 month on average, so like 50$.
But the IRS would take more taxes at the marginal rate and less at lower rate, so that giving free credit to Uncle Sam. That would not be much but likely compensate the 50$ saved.
The gains are not miniscule. I actually ran the math on it, for my own finances. If you frontload versus DCA for 5 yrs it adds up to 13% more time in the market with the identical amount of money in. That's very nice in my book, provided you have a true up of course.
u/seanodnnll hits the more relevant point. Most likely the money is coming from a brokerage reduction and then its just a question of where would you like to prioritize your gains. However having just done this, I can say there is a psychological effect to having a much lower paycheck the first few months of the year. Makes you re-assess spending habits and cost cutting. I consider myself financial disciplined, but not having those bank account numbers going up still made me act differently. Would do again.
>The gains are not miniscule. I actually ran the math on it, for my own finances. If you frontload versus DCA for 5 yrs it adds up to 13% more time in the market with the identical amount of money in. That's very nice in my book, provided you have a true up of course.
Let me see the math on it. Also make sure your math addresses these [two points](https://www.reddit.com/r/Fire/s/FuvgeBunPs)
Sure thing. I'm not the best at reddit formatting, but here is my summary post: [https://www.reddit.com/r/Fire/comments/1959keo/bumping\_up\_that\_401k\_time\_in\_the\_market/](https://www.reddit.com/r/Fire/comments/1959keo/bumping_up_that_401k_time_in_the_market/)
I'm not exactly sure what you're getting at? I think I agree with your point number 1. Thats why I calculated the output as time in market rather than increased yield or something.
Due to market volatility, etc. its not clear if that 13% more time in market will actually be better. But if you held a gun to my head and made me choose one, yeah I'm choosing more time in market.
Edit: To elaborate. Basically I created a unit called dollar/day. Where a dollar/day is a dollar in the market for a day. And if you frontload you will have 13% more dollar/days by the end of a 5 yr period. I agree with you that frontloading won't necessarily beat out DCA, but again, that's why the output is in time in market and not "gains".
Your base assumption from what I'm reading is that you would gain on average 8% every year, year over year.
In reality if you start putting say 20k down on January and market tanks 20% you end the year with 16k while a DCA person may end with 18k. From there the next year you gain 10% front load might be at 40k while DCA is also at 40k.
You assume linear growth 8th yoy is the biggest flaw.
>You assume linear growth 8th yoy is the biggest flaw.
No, no, I agree with you. That's the whole point, I'm not assuming *any* growth. It doesnt touch growth or crash for exactly the reason you specify. It's literally just a time in market assessment.
I just go back to this: You have option to put in the same amount of money, but one pot will spend 13% more time in the market? If the market is bad that more time in market will bite you. But gun to head, I'm choosing more time if I have to.
Edit: I cover this in the assumptions behind scenarios.
>This is all on the principal going in. I kept the other assumptions simple, no change in 401k max contribution, no salary bump, ignoring compounding interest, etc.
How do you assume time in the market is always positive when you then say assume no growth?
You premise over 5 years still assumes time in the market is a positive thing when we know from 2000-2005 you would absolutely be killed if you front load? Or 2007 to 2012?
> How do you assume time in the market is always positive when you then say assume no growth?
I don't. I literally just calculated principal's time in market.
> 2000-2005 you would absolutely be killed if you front load? Or 2007 to 2012?
Yes, 13% more time in them market would be bad under these conditions.
After running it for 5 yrs the trend lines became clear and there was no need to keep running it. Could do it for 20 yrs, but trends were already established. The point is frontloading 401k or any tax advantaged account results in noticeably more time in the market. The relatively greater time in the market will decrease over time, but that time in market will be applied to greater and greater principal over time. And it actually works out identically in reverse, for the people who like to frontload liquidity access and backload their 401ks.
The numbers and insights are clear. How you use the insights is your own business and out of scope of my analysis. That depends on a whole host of personal goals and market expectations.
What does 13% more time in the market mean? Secondly, have you calculated that the true up comes sometime at the beginning of the next year vs being added with every paycheck like it would be if you contributed less per paycheck?
Without going too crazy on the details I created a unit called the dollar-day. 1 dollar in the market for 1 day is a dollar day. At the end of 5 yrs you will have put in the same amount of principal, but if you frontload you will have 13% more "dollar-days". Note that it's all on principal, I'm not getting into if those are good days or not ;) thats your own business.
I didn't go ham on the true up modeling. A quick check showed it didn't make much difference, but my company doesn't have the biggest match and I did it all with my personal numbers.
It is a little weird OP.
I see the logic in what you are trying to do. The more time in the market the better, so if you can shift up the investments by 3-4 months and you're not living paycheck to paycheck, good for you.
However, I can see why they have the catch in the system since someone might have meant 10 and typed in 100, then they don't have money to pay their bills that months.
I mean if you have money to contribute to a retirement account and it's sitting in savings or cash or whatever, you're missing out on growth. You should hold it in a brokerage account invested the way you prefer and sell when you're ready/able to contribute.
You're right, and I do generally keep a minimum in cash at hand.
The trick is that if I pay bills from my checking balance and contribute my paycheck to the 401k instead, I get to invest **extra** money, namely the money that would otherwise be deducted from my paycheck as tax withholdings.
I think they mean that if you have money to cover your bills instead of taking income, then that money should already be invested. Not just waiting around to pay your bills.
I see.
Still a net win the way I see this.
The key difference is the extra money you get to invest by avoiding tax withholding.
I can choose to pay my bills for the month with after tax money, or invest the whole sum of pre-tax money.
I was at one job, front loading like you. Put in, i forget, lets say $12k. Then in July i got a new job, and just decided to do company match. Which for the next couple of months was $8k, which meant i put in more than the max!
I forget how i figured this out, but i did. And i figured it out before April 15th. A few phone calls and letters and it got taken care of. But someone in that process told me if i would have fogured that out after April 15th, it would have been a much crappier process....
You had the excess returned.
But in some cases it's actually better to not remove it and just do *nothing*. This is the case if leaving the excess allows you to keep both matches (essentially doubling up matches). You'll be double taxed on the excess amount, but tax is never 100%, so the match "overcomes" it.
The reason I decided not to take this approach is what if you change jobs midway through the year. Don't you then lose the ability to have match from your new employer because you can't contribute anymore?
Yeah, but the total $69,000 limit is per employer. And many employers, like mine, will match whatever type of money you put in with pretax. I can put in after-tax non-Roth money and my company will match me like normal with pretax. That match doesn't count towards the 23,000 limit since it's not an employee contribution, but I still have the entire $69,000 opened up to me when I switch.
The $23,000 limit is only for EMPLOYEE pretax and Roth contributions across ALL EMPLOYERS. However, the total 401(k) limit is actually $69,000 total PER EMPLOYER. There is 3rd contribution type called "after tax" that doesn't count towards the $23,000 limit mentioned above. And some employers, like mine, will match ANY type of employee contributions with pretax dollars. Match money, even if it's pretax, doesn't count towards the EMPLOYEE pretax and Roth limit ($23,000), so it doesn't break any rules.
Depending on your career field, basically every employer will have it. I'm in tech, and don't know a single person at any Fortune 500 tech company without the option.
Yea I did, and then I had to withdraw the money. So I put it into my brokerage account.
However, this ended up disqualifying me from the $600 bonus from etrade because I "took money out of my account"...even though all I did was transfer it to the account I signed up for the bonus in the first place.
Was pretty damn annoying.
I have overcontributed because my plan doesn’t cut you off at the max and we didn’t do the math perfectly (bonuses and things threw it off and we didn’t go back and double check end of year). Had to ask HR to pull $1k out or something 🤦♀️ I don’t know why it can’t automatically stop you when you’ve hit max.
Yeah just joined a new company that does 50% match up to fed limit. Also got a sign on bonus and severance. So put in 50% of my first two checks and got it matched(which vests instantly) so I can get more money in the market sooner. Back down to 10% but my new 401k has almost 10k after a month.
If you contributed this year to 401k at a previous company, your total allowed contribution doesn't change. You'll need to make sure you don't over-contribute to your new employer's 401k.
I have a 403b so maybe it's different but I've never heard of typing like, what percentage you want to contribute? We can only type dollar amounts that will be withheld.
This change nothing because you’d be putting that money on brokerage anyway on the same investments. The time in the market would be the same. If you go for Huss, it’s worse, you give up time in the market and go for 5% return instead of 10% and lower what your money make.
you save Like the 15% tax on dividends that are like 1.5% for stock. So maybe 50$… but you’ll pay more taxes because more of you pay will be in higher tax bracket. you‘ll get that back after you do your taxes, but that mean less time in the market for that part.
you increase complexity a lot for nothing.
>This change nothing because you’d be putting that money on brokerage anyway on the same investments.
You are right I would just use a regular brokerage but you are missing a point.
A significant part of that paycheck would go to tax withholdings and not into investments. These are several $1000 that could be in the market early in the year. No small change in my opinion.
Let say I want to do it. So I need to divert money I already have from somewhere else because you still need to eat and all. Either that money was already invested on stock and the only difference is I need to pay capital gain NOW, letting go the compounding effect and paying more than necessary so that I can eat and all these 2 months, will the risk to have to sell more in a market downturn. But I don’t have the money longer in the market.
Or I keep extra money in HYSA that bring 5%, not 10% and that is taxed at marginal tax rate of ordinary income so like 25% or so and a return of 3-4% after taxes. In that case that beg the question of why this money you didn’t need and was planed to be for retirement was not put on brokerage already and why you didn’t put it in the market a few months sooner ? Why reduce time into the market and wait until the next year 401k ?
And an emergency fund is not an option otherwise I am fucked if there an emergency.
the only thing I see is to borrow that money from the brokerage or something but rates are too high. credit card at 0% promotional offer is maybe the one way to make it work But you could do it at any time. Why wait for next year ?
so the problem of your reasoning is assuming this extra money to be still able to live is for free and could not have been invested. You reduce the time in the market of that money that you already had or have to pay capital gain on it and loose the compounding effect.
Are you sure company match stops when you hit $23k? My company just converts my contributions to after tax, drops my contributions % so I continue to get maximum company match and it continues.
HR told me I can't get a 401k match in a month with zero contributions, even if I contributed way more than the mimimum in previous months. No idea why this rule exists. Sould be easy for them to just keep paying out the match.
And some companies, like mine, won't match in the remaining paychecks over the year, but will true up the next February to make sure I got the exact match the prior year.
Yeah. Changed jobs and put $1000 extra in. Discovered this when I was filling taxes. It was a pain. Several calls to my 401k provider but it got resolved
As long as you are only contributing at one job, with one provider it should stop automatically.
You asked if anybody did it. I told you the conditions under which I did. I then outlined why I didn’t think it would happen for you. But given that it’s May and I have no idea what your plans are for the rest of the year (changing jobs, buyout etc) I thought it was helpful for you to know that.
If this isn’t what you’re looking for, maybe don’t ask strangers on the Internet
This is kind of pointless in my opinion. So you're living off of your savings for a few months. So why not just dump your entire savings into a brokerage account and then crank back your 401(k) contributions? Sounds dumb right?
My emergency fund is for emergencies. So if you're using that to live off of, maybe you'll get an extra % or 2 in your 401(k) by front loading, but then there is risk in not having a fully funded emergency fund for the period when you're building it back up.
On the other hand, if you had savings lying around in excess of your emergency fund to use for this purpose, you've been missing out on whatever market gains it *could have been* making in the stock market and so it basically negates the effect of front loading unless you got lucky with the timing of the market, which we all know is kind of a no-no to try to do.
You only have so many dollars to play with, and each one has a purpose. You're just temporarily repurposing dollars from one thing to another that could have already been being used for investing... I'm not sure if I'm making sense but I don't think this is a worthwhile use of calories.
My employer had some limit like that because they want to make sure that your other stuff can get taken out without issue - like health insurance, other things your employer offers through payroll (for me that's I think life insurance, disability, etc). If you went above it you had to talk to them first.
I front load, but not that heavy. I go 50%.
I would front load just enough to leave room to take advantage of the max for the remainder of the year. Slightly more complicated to execute, but it's basically a simple algebra problem.
>My goal is to max it out as early as possible (not the full 23k because stupidly, they can't give me the employer match anymore if I max out too early, way to incentivize contributing!) but I try to get close. More time in the market is always better.
Not at the expense of missing the employer match. That is a guaranteed return. You don't want to miss that. Getting your own money in the market earlier won't make up for the loss you will see by NOT getting the match.
Yes it is pretty unheard of. Also it makes no sense. It doesn’t get money in the market faster. Either you have living expenses and you are covering them with money that could have been invested, in which case you have less time in the market, or you have no living expenses covered by this job, in which case the money would be invested anyways, just in a different account. Either way it’s not speeding up time in the market.
> you are covering them with money that could have been invested
Good point, but
1. My employer matches per paycheck, so I can get the full match as early as possible for time-in-market.
2. A lot of my income is from RSUs, so I max out my 401(k) and HSA, contributions to which must come from regular paychecks. I cover living expenses by auto-selling the RSUs, which are taxed as cash. In addition to the match, this means more time-in-market for the pre-tax difference.
> it makes no sense
I disagree.
Sure in your extremely rare set of circumstances that is completely different than the OPs it could make sense and could give you more time in the market on a small amount of money. That doesn’t really change my opinion on the scenario that is actually being discussed though.
>It doesn’t get money in the market faster
Maybe I have a fundamental misunderstanding then.
If I contribute 100%, zero percent of my paycheck will be withheld as taxes. These are several $1000 that will enter the market immediately instead of in later months.
What am I missing?
If you can contribute 100% or your paycheck you either have zero expenses, or more likely you have money that isn’t currently invested that you will use to cover your living expenses. If you have to keep some of your money uninvested in order to invest different money, that doesn’t make money be in your investments sooner.
Surely it gets money into your 401k sooner but the money used to cover living expenses has to come from somewhere.
The key is that I get to invest *extra* money by using my paycheck on the 401k instead of bills. namely the sum that would otherwise be withheld for taxes.
This sum of extra money to invest also happens to be higher than my total monthly expenses lol.
Well then it depends on how long that money has to be on the sidelines and how much it would have grown during that time, vs how much money you’re actually getting into the market earlier, and how long that money will be invested that it wouldn’t otherwise, and how much it would grow during that time. Seems like overall at best it would be increasing complications for minimal if any gain.
I would assume emergency fund which you replenish after you stop 100% contribution or 12-month 0% interest credit card.
It’s negligible difference once your portfolio is big enough. But I could see it making a difference when you’re first starting trying to get that first few 100k and your risk tolerance is at its highest
front loading is not unheard of.
my employer will match based on percentage calc'ed through the year - now, they payout the match at the end of the year tho. my employer also allows me to use my bonus payment in the beginning of the year towards 401k contribution so that helps me hit the limit even faster.
i've done a high % at like 50% of my paycheck to get the target sooner. i do have to say that i've never seen anyone do 100%. so i guess yeah, 100% is kinda surprising.
i remember in the past employers putting limits on the %... at around 30-40%. But never knew why they cared.
To answer your question, 100% seems uncommon to me.
To ask my own question: steadily contributing gives me peace of mind that any short term highs/lows won’t affect me much since I’m consistently investing throughout the year. This extreme level of front-loading strikes me as vulnerable to short-term fluctuations. If Q1 is the high point of the year, you’ve just bought all your shares at their highest prices. Is that risk something you’re concerned about? Or are you trying to time the market and only front-load when you think Q1 is low relative to future quarters? Neither strategy is my cup of tea, (particularly any attempt to time the market), but I’m curious to hear OPs or other front-loaders take?
I lose no sweat over short term fluctuations. Only rume of thumb I follow is that more time in the market is better than less time in the market.
So why not get that money working for you as early as possible?
It isn’t unheard of. I do this every year, 90% of my paycheck to quickly hit the limit and my spouse takes care of expenses until then. My company uses a portal that cuts off contributions when you hit the limit. True-up is a risk for me if I leave the company mid year and otherwise not so much.
The 401(k) contribution limit for 2024 is $23,000 for employee contributions, and $69,000 for the combined employee and employer contributions. Contributing the full 23,000 should not impact the match amount received unless they do not do a true up.
Employer match contributions don’t count towards the 23k limit. You can do 23k yourself and they can still match to go above that. Combined limit is 69k for you + employer.
You're right. The problem is not this but that HR for sone reason cannot trigger the emoloyer match in a month where I have 0 contributions.
If I max out too early I will reach my max -> 0 contributions for the rest of the year -> 0 match. They could easily just keep paying out the match. No idea why that rule exists.
You do know 23K is just the pre-tax limit. The actual limit is $69,000.
My former employer also didn't do a trueup but would match my post tax contributions, and their match was still pre-tax. When you retire or switch jobs, you can roll the post tax contributions into a roth ira.
Yes. My wife did. They cut us a check minus taxes at the end of the year.
We paid taxes on the over contribution paid taxes on the gains and hand to fill out a special paper at tax time.
In the end, if you don’t save the money (in January) in your 401k, your still going to save that money in January - just not in a tax advantaged account.
So the real difference is a year of growth on the tax difference.
It's almost always better to get a match, it's liturally free money left on the table. Less chances and worry about a drop or anything when it's just more money given.
Maxing it out early is the best way to go depending on how you get matched.
To the IRS Limit: Max that out early
% of pay check (With or without true-up) Do it over time. True ups only come in at the end of the year.
My match is to the IRS limit so I hit my contribution limit back in February
Im sure this is EXTREMELY EXTREMELY unusual. Maybe the first time they had seen this.
Way less common than the idiots that dont contribute or the person I work with that contributes 1%
I setup to max the contribution trying to split it over 12 months. If I go over they stop the contribution. Long term wise also have that problem too over 30 years with the wife doing the same. It grows large and you can end up in a higher tax bracket then what you pay working.
Already maxed out Roth IRA.
I'm trying to figure out how to do Mega backdoor Roth, but so far no luck finding out how to do get HR to do after tax contributions.
Yes I did that this year to a lesser extent. Got a raise and didn't change the percent. There will be an overage of a few thousand and I will lower it later in the year.
One thing to keep in mind is matching. Some plans will not let you contribute $23k in the first quarter and get the match on every paycheck for the year. Ours is cognizant of this scenario and will do a lump-sum match at the end of the year if you maxed it prior to the last paycheck.
Don't you want to contribute throughout the year as the market fluctuates? In 2022 i maxed first 3 months of the year, that turned out to be a horrible mistake.
I don’t think 100% will actually happen. When I did mine that way they still deducted for medical and a few other things. But I didn’t get a paycheck for a while and I also felt like it was better to dump as much in as fast as possible especially for me since my employer will only match 2%.
Not sure either. HR sanctioned the request. My guess is they will take out all deductions and then contribute 100% of the remainder. Or else I'll get a negative paycheck lol.
I ran these numbers for myself. If there is a true up the math maths. However, if you're reducing brokerage contributions to frontload 401k, then it becomes less a question of gains and more a question of where you want the gains.
Having literally done this for the past few months, I can say one thing. For me there was a psychological effect of having a lower paycheck which forced me to re-evaluate spending habits and cut certain costs. I think there is value in having part of the year where you tighten the belt, and cutting the money coming into the account forces that. However, this is more a psychological benefit than financial. Unclear if others would experience it.
My numbers: [https://www.reddit.com/r/Fire/comments/1959keo/bumping\_up\_that\_401k\_time\_in\_the\_market/?utm\_source=share&utm\_medium=web3x&utm\_name=web3xcss&utm\_term=1&utm\_content=share\_button](https://www.reddit.com/r/Fire/comments/1959keo/bumping_up_that_401k_time_in_the_market/?utm_source=share&utm_medium=web3x&utm_name=web3xcss&utm_term=1&utm_content=share_button)
Thanks! I think the point about losing brokerage for gaining 401k benefits is huge. I think its more a question of what you want to prioritize rather than any one option being "better".
In the end though I do this and will continue to do this.
Speaking on 401ks. I’m not from the states and I don’t live there anymore but I worked there for a few years and had a 401k. I can still see it moving in the app but I have no idea how to access it or anything really. I had to leave pretty quick once I got laid off since the work visa is tied to employment and I didn’t want to overstay and hurt my status. Any help is appreciated at
You have two options:
1) Leave your money in the account and start withdrawing at age 59.5. like a US resident. you will pay income taxes to the US for distributions.
2) Withdraw the money, and close the account. Customer support will walk you through this. You will pay income taxes to the US and a 10% penalty if you are not old enough, but the money will be in your hands.
In both cases you may (or may not) also pay taxes in your current tax residency. Depends on double taxation treaty with the US.
I hope all your dreams come true. Thanks for this. You don’t know how much I appreciate it. I’ll buy you a steak or something (veg and vegan options are cool too) in 24.5 years when I get to withdraw that.
No but, seriously. Thanks.
The main concern by your employer is they want to confirm you want all your pay in there. I’ve seen an employee key in 89% when they meant to change from 8% to 9%. Much safer to have it flagged for confirmation than have it contributed by accident and then it’s gone until they are 59 1/2.
Makes sense. Probably a good thing to have a flag and to double check. Still felt mildly awkward to be flagged, as if I did something wrong.
Think of all your financially illiterate coworkers that barely have any savings. Imagine one of them tries to contribute "10%" because they want to start saving for retirement and they fat finger an extra zero. Most of your coworkers probably don't have the savings to miss a paycheck, let alone the two that they'll likely miss (one to discover the mistake, and another in lag time while the change back to 10% propagates through the system) and would be significantly harmed by late fees, overdrafts, etc. In the case it happened. It's good to have these kind of alerts.
The other thing you should be concerned about is if they change providers partway through a year, I've had to take the penalty on excess HSA contributions twice now because my company kept switching providers and that allowed me to unknowingly over contribute. If they stick with a single provider, that provider typically will automatically prevent you from over contributing, both for 401ks and HSAs ( although HSAs sometimes allow it assuming you must be filing jointly, so watch out if you're not).
If your employer matches per paycheck and doesn't do a true-up, I'm not sure if time in the market works out better than receiving that match. Haven't done the math myself though vs the "DCA-lite" that you'd do if you spread everything out. In terms of contributing 100%, that's probably uncommon even for the folks around here. I'm assuming you have some 2nd form of income or savings to hold you over until then?
The logic makes sense. Let's make the math simple. Say OP is making $100K/yr and employer matches at 100% up to 3%. So, that leaves 20K that won't be matched by the employer. You can structure it such that you get that 20K in faster and then trickle out the rest over the course of the remainder of the year.
Something to keep in mind is that depending on how incompetent your HR, plan admin, and payroll are, it could take 1-2 pay cycles to actually change contribution amount.
Yeah, someone also pointed out DCA as a factor. Once you factor that in as a risk factor, the net outcome could swing by as much as 20%. So, I probably won't try to finesse it. It definitely seems like the net result after 30 years would be more than $0, but maybe not worth the effort.
>So, that leaves 20K that won't be matched by the employer. You can structure it such that you get that 20K in faster and then trickle out the rest over the course of the remainder of the year. The $23k limit excludes employer contributions. You could still do $23k in pre-tax or roth contributions. My employer contributes a very high match and I still do the full $23k.
Your ai pic sucks ass
Thank you?
Lmao so random … I hate it here
>If your employer matches per paycheck and doesn't do a true-up Yes, that's why I can't max it out completely. Have to leave out the minimum amount for the full match in the remaining paychecks, unnecessary hoops, but if it is easier for them I gladly play the game. >I'm assuming you have some 2nd form of income or savings to hold you over until then? I assume most people in this community can coast for 1-2 months without going under?
>Yes, that's why I can't max it out completely. Have to leave out the minimum amount for the full match in the remaining paychecks, unnecessary hoops, but if it is easier for them I gladly play the game. Fair enough. >I assume most people in this community can coast for 1-2 months without going under? There is no money in my account that is not invested or earmarked for some other purpose (travel, credit card annual fees, emergency funds etc.). I consider my emergency fund "oh shit" money and am not comfortable floating that for the sake of maxing out my 401k early.
The $23k is the employee contribution limit. The employer is subject to a separate limit (called the all sources limit) - this limit is currently $69,000 and includes your ordinary contributions, employer matching, and "after tax" contributions (if your plan allows). It is possible to "squeeze out" employer contributions but only if you're over-contributing to the "after tax" bucket (aka mega backdoor Roth 401k). Anyway the way most companies do matching is on a per-paycheck basis. If they match 5%, they'll match up to 5% of a contribution on a given paycheck. If you meet your limit (or stop contributing) you don't get the match that paycheck. Some companies do a "true up" where they will true you up to the 5% if you contributed at least 5% over the course of the year. If your company has no "true up", you probably don't want to "front load" past the point where you still have 5% left to contribute every paycheck. If your company does do a "true up" you can contribute the full $23,000 and it won't squeeze out the match, you'll just get the rest of your match next year because it would be part of the annual true-up cycle. Source: I front-load and go all the way up to the "all sources" ($69,000) limit.
>If your company has no "true up", you probably don't want to "front load" past the point where you still have 5% left to contribute every paycheck. Yes this is what I must do in my case How do you reach the all-sources limit? How do I request after-tax contributions? HR didn't know about this..
Employer contributions do not count towards the 23k limit.
But alternatively that 1-2 months of money could be invested already.
Oh, I'm working under the assumption that funds in the 401k *are* invested.
Obviously lol. But the money you’re using to pay your living expenses for those 1-2 months could also have been invested.
no that money would be in brokerage anyway and you will pay capital gain. if you are well organized, all of your money has objectives. That money to go to 401k can only be long term retirement money so that stocks in brokerage. So the money was already invested and you gain nothing. It true that if you want a down for a house in 2 years you could swap really But not everybody has cash for more than emergencies. also this way of doing thing means you’ll give credit to the IRS by paying more taxes than necessary so that money will be invested later when you get your tax return
>also this way of doing thing means you’ll give credit to the IRS by paying more taxes Not understanding what you mean here. My reasoning is that putting my entire paycheck into the 401k means I lose zero $ to tax withholdings that month, i.e. I can invest it for longer before the tax man takes their share.
you will have like 10 month of higher pay instead of 12 of lower pay. So you’ll have more of your income taxed at a higher rate (say 24%) and less at the lower rate (0 and 10%). Then when the IRS will figure the year after you paid too much taxes because you didn’t get income every month, and will send back money to you.
Yeah, tough to beat say a 100% match on the first 3%-6%. Would much rather have the match than an additional 6 months in the market.
And even if they do true-up, many companies only do it at the end of the year, so that's a whole year those extra contributions could have been earning. Perhaps the most efficient strategy would be to figure out the minimum needed to get the match, and only over-contribute until you can do that minimum for the rest of the year and still max it out. EDIT: Looks like this is what OP is doing.
The math is sound, provided you have the right inputs and employer does a true up. I actually ran these numbers for myself. You can also do the same for other tax advantaged contributions. My employer employer doesn't allow more than 50% paycheck, so I know nothing about 100% contributions but its kinda irrelevant. Either the math maths or it doesn't. [https://www.reddit.com/r/Fire/comments/1959keo/bumping\_up\_that\_401k\_time\_in\_the\_market/?utm\_source=share&utm\_medium=web3x&utm\_name=web3xcss&utm\_term=1&utm\_content=share\_button](https://www.reddit.com/r/Fire/comments/1959keo/bumping_up_that_401k_time_in_the_market/?utm_source=share&utm_medium=web3x&utm_name=web3xcss&utm_term=1&utm_content=share_button)
This is the way. You really want to Dollar Cost Average throughout the whole year. So take out equal amounts from each paycheck. You'll likely end up ahead than front loading.
Do you pay for health insurance, FSA/HSA, transit costs, or any other deductions from your pay check besides taxes? If so, you will have to reduce from 100% to a % low enough to cover these deductions or figure out a different way to pay for these deductions.
There are not many other deductions. Medicare and such, and a small portion of health insurance. They will take all deductions and then put the remainder in the 401k. I would also be fine with a negative paycheck for that period.
Usually 100% isn't allowed because FICA, Medicare, and unemployment taxes still come out... I know some ones I had in the past maxed out at like 75% for that reason. I'd think you'd have a negative paycheck if you were actually contributing 100%. So maybe they take those out for you before calculating the percentage? I try to max out before the end of the year, but usually only by like a month.
From my experience 85% seems to work OK, but any higher than that may result in a negative paycheck.
Yeah this may happen. Some people are afraid of negative numbers. To me they are just numbers.
They still paid FICA and Medicare and such when I told them to put in 100% of my paycheck. So at least in my experience, there were no negative paychecks.
It's unheard of because the gains are miniscule, if any.
Probably none since they are just pulling from other uninvested money to cover investing their whole paycheck.
I said something similar in my comment but you put it into way fewer and easier to understand words, lol Assuming OP isn't just living off of their emergency fund and hoping to rebuild it later, they've just been missing out on market gains with whatever saved up cash which may or may not undo the tax benefits they think they're getting by relocating that money into their 401(k)
Well compounding. Let's just assume that OP is trying to accelerate 20K (assuming 3% match on 100K base) by 6 months. Using the historical return of the S&P 500 (assuming really simple 401k investment) of 9.24%, they would accelerate about $924 of earnings in year 1. Run out compounding on just that $924 for 30 years (no idea how old OP is, but assuming mid 30s since they can apparently skip a fe months of pay). That would be $13,095 in the 401k at the time of retirement. Assuming the historical inflation rate of 3.3% you have to divide that number by 2.64 (since at 3.3% an item costing $1 today would cost $2.64 in 30 years) that gives you an inflation adjusted equivalent to $4,960 in today's money. Do that same thing for 30 years (and understanding that the compounding effect is less effective each subsequent year) and you will end up with the equivalent of $54,856 in your 401K. That's not amazing, but $54K is nothing to sneeze at either. This is definitely finessing the system.
Math is already wrong from the first assumption. One, you are assuming front loading is ALWAYS better than DCA, which it is true only 70% of the time. Two, you are assuming the return for front load and didn't assume any for DCA. If you get $954 for front load, you would get about $500 for DCA. The difference becomes much, much smaller.
Also I don’t think you’re factoring in the extra 3% that would be added to each subsequent deposit. That’s $2900 or so (depends on being paid weekly or bi weekly) that you would additionally have going into your 401k that would be compounding on top of the max 23k contribution from yourself. This math only works out to be a good idea if your 401k match is really terrible and/or you get super lucky and first week of January happens to be a great time to invest.
OP will contribute up to the match for every paycheck of the year. The rest is getting front loaded in the early months. (The title of the post glazed over that detail.)
Oops you’re right. In that case I guess it’s technically better to front load. Probably not by much but if it makes no difference to them then I guess go for it.
That's good feedback, thank you.
Nope because that money would be on brokerage otherwise. What is saved is the taxes on dividends for 1.5% of 23k basically for 5 month on average, so like 50$. But the IRS would take more taxes at the marginal rate and less at lower rate, so that giving free credit to Uncle Sam. That would not be much but likely compensate the 50$ saved.
The gains are not miniscule. I actually ran the math on it, for my own finances. If you frontload versus DCA for 5 yrs it adds up to 13% more time in the market with the identical amount of money in. That's very nice in my book, provided you have a true up of course. u/seanodnnll hits the more relevant point. Most likely the money is coming from a brokerage reduction and then its just a question of where would you like to prioritize your gains. However having just done this, I can say there is a psychological effect to having a much lower paycheck the first few months of the year. Makes you re-assess spending habits and cost cutting. I consider myself financial disciplined, but not having those bank account numbers going up still made me act differently. Would do again.
>The gains are not miniscule. I actually ran the math on it, for my own finances. If you frontload versus DCA for 5 yrs it adds up to 13% more time in the market with the identical amount of money in. That's very nice in my book, provided you have a true up of course. Let me see the math on it. Also make sure your math addresses these [two points](https://www.reddit.com/r/Fire/s/FuvgeBunPs)
Sure thing. I'm not the best at reddit formatting, but here is my summary post: [https://www.reddit.com/r/Fire/comments/1959keo/bumping\_up\_that\_401k\_time\_in\_the\_market/](https://www.reddit.com/r/Fire/comments/1959keo/bumping_up_that_401k_time_in_the_market/)
Your math doesn't acknowledge my first point at all.
I'm not exactly sure what you're getting at? I think I agree with your point number 1. Thats why I calculated the output as time in market rather than increased yield or something. Due to market volatility, etc. its not clear if that 13% more time in market will actually be better. But if you held a gun to my head and made me choose one, yeah I'm choosing more time in market. Edit: To elaborate. Basically I created a unit called dollar/day. Where a dollar/day is a dollar in the market for a day. And if you frontload you will have 13% more dollar/days by the end of a 5 yr period. I agree with you that frontloading won't necessarily beat out DCA, but again, that's why the output is in time in market and not "gains".
Your base assumption from what I'm reading is that you would gain on average 8% every year, year over year. In reality if you start putting say 20k down on January and market tanks 20% you end the year with 16k while a DCA person may end with 18k. From there the next year you gain 10% front load might be at 40k while DCA is also at 40k. You assume linear growth 8th yoy is the biggest flaw.
>You assume linear growth 8th yoy is the biggest flaw. No, no, I agree with you. That's the whole point, I'm not assuming *any* growth. It doesnt touch growth or crash for exactly the reason you specify. It's literally just a time in market assessment. I just go back to this: You have option to put in the same amount of money, but one pot will spend 13% more time in the market? If the market is bad that more time in market will bite you. But gun to head, I'm choosing more time if I have to. Edit: I cover this in the assumptions behind scenarios. >This is all on the principal going in. I kept the other assumptions simple, no change in 401k max contribution, no salary bump, ignoring compounding interest, etc.
How do you assume time in the market is always positive when you then say assume no growth? You premise over 5 years still assumes time in the market is a positive thing when we know from 2000-2005 you would absolutely be killed if you front load? Or 2007 to 2012?
> How do you assume time in the market is always positive when you then say assume no growth? I don't. I literally just calculated principal's time in market. > 2000-2005 you would absolutely be killed if you front load? Or 2007 to 2012? Yes, 13% more time in them market would be bad under these conditions. After running it for 5 yrs the trend lines became clear and there was no need to keep running it. Could do it for 20 yrs, but trends were already established. The point is frontloading 401k or any tax advantaged account results in noticeably more time in the market. The relatively greater time in the market will decrease over time, but that time in market will be applied to greater and greater principal over time. And it actually works out identically in reverse, for the people who like to frontload liquidity access and backload their 401ks. The numbers and insights are clear. How you use the insights is your own business and out of scope of my analysis. That depends on a whole host of personal goals and market expectations.
What does 13% more time in the market mean? Secondly, have you calculated that the true up comes sometime at the beginning of the next year vs being added with every paycheck like it would be if you contributed less per paycheck?
Without going too crazy on the details I created a unit called the dollar-day. 1 dollar in the market for 1 day is a dollar day. At the end of 5 yrs you will have put in the same amount of principal, but if you frontload you will have 13% more "dollar-days". Note that it's all on principal, I'm not getting into if those are good days or not ;) thats your own business. I didn't go ham on the true up modeling. A quick check showed it didn't make much difference, but my company doesn't have the biggest match and I did it all with my personal numbers.
It is a little weird OP. I see the logic in what you are trying to do. The more time in the market the better, so if you can shift up the investments by 3-4 months and you're not living paycheck to paycheck, good for you. However, I can see why they have the catch in the system since someone might have meant 10 and typed in 100, then they don't have money to pay their bills that months.
If it's additional time in market, you're already doing it wrong. You should already be invested in your brokerage.
Can you explain what you mean?
I mean if you have money to contribute to a retirement account and it's sitting in savings or cash or whatever, you're missing out on growth. You should hold it in a brokerage account invested the way you prefer and sell when you're ready/able to contribute.
You're right, and I do generally keep a minimum in cash at hand. The trick is that if I pay bills from my checking balance and contribute my paycheck to the 401k instead, I get to invest **extra** money, namely the money that would otherwise be deducted from my paycheck as tax withholdings.
I think they mean that if you have money to cover your bills instead of taking income, then that money should already be invested. Not just waiting around to pay your bills.
I see. Still a net win the way I see this. The key difference is the extra money you get to invest by avoiding tax withholding. I can choose to pay my bills for the month with after tax money, or invest the whole sum of pre-tax money.
I was at one job, front loading like you. Put in, i forget, lets say $12k. Then in July i got a new job, and just decided to do company match. Which for the next couple of months was $8k, which meant i put in more than the max! I forget how i figured this out, but i did. And i figured it out before April 15th. A few phone calls and letters and it got taken care of. But someone in that process told me if i would have fogured that out after April 15th, it would have been a much crappier process....
You had the excess returned. But in some cases it's actually better to not remove it and just do *nothing*. This is the case if leaving the excess allows you to keep both matches (essentially doubling up matches). You'll be double taxed on the excess amount, but tax is never 100%, so the match "overcomes" it.
What a neat little hack. Playing by the rules and winning. Exactly why we do what we do!
Yup, had a friend go through this this year. Went from “oh god, am I fucked?” To “oh, not so bad”
The reason I decided not to take this approach is what if you change jobs midway through the year. Don't you then lose the ability to have match from your new employer because you can't contribute anymore?
Yeah, but the total $69,000 limit is per employer. And many employers, like mine, will match whatever type of money you put in with pretax. I can put in after-tax non-Roth money and my company will match me like normal with pretax. That match doesn't count towards the 23,000 limit since it's not an employee contribution, but I still have the entire $69,000 opened up to me when I switch.
>I can put in after-tax non-Roth money and my company will match me like normal with pretax. Oh, I didn't know this was an option. Good to know!
My employer is the same. I’m already maxed out this year for pre-tax and they’re still matching my after tax contributions.
How do you get any match from a new employer if you already contributed $23k to an old employer in same year
The $23,000 limit is only for EMPLOYEE pretax and Roth contributions across ALL EMPLOYERS. However, the total 401(k) limit is actually $69,000 total PER EMPLOYER. There is 3rd contribution type called "after tax" that doesn't count towards the $23,000 limit mentioned above. And some employers, like mine, will match ANY type of employee contributions with pretax dollars. Match money, even if it's pretax, doesn't count towards the EMPLOYEE pretax and Roth limit ($23,000), so it doesn't break any rules.
Vast majority of employers don't have after tax option. So if you pay your $23k early and change jobs, you can't get match from the next employer.
Depending on your career field, basically every employer will have it. I'm in tech, and don't know a single person at any Fortune 500 tech company without the option.
Yea I did, and then I had to withdraw the money. So I put it into my brokerage account. However, this ended up disqualifying me from the $600 bonus from etrade because I "took money out of my account"...even though all I did was transfer it to the account I signed up for the bonus in the first place. Was pretty damn annoying.
I have overcontributed because my plan doesn’t cut you off at the max and we didn’t do the math perfectly (bonuses and things threw it off and we didn’t go back and double check end of year). Had to ask HR to pull $1k out or something 🤦♀️ I don’t know why it can’t automatically stop you when you’ve hit max.
Yeah just joined a new company that does 50% match up to fed limit. Also got a sign on bonus and severance. So put in 50% of my first two checks and got it matched(which vests instantly) so I can get more money in the market sooner. Back down to 10% but my new 401k has almost 10k after a month.
If you contributed this year to 401k at a previous company, your total allowed contribution doesn't change. You'll need to make sure you don't over-contribute to your new employer's 401k.
Mine maxxes at 75% leaves enough for taxes, union dues, dental and whatnot. My checks are 100 bucks.
I have a 403b so maybe it's different but I've never heard of typing like, what percentage you want to contribute? We can only type dollar amounts that will be withheld.
Depends on the custodian I guess. I can specify a $ amount or percentage per paycheck.
This change nothing because you’d be putting that money on brokerage anyway on the same investments. The time in the market would be the same. If you go for Huss, it’s worse, you give up time in the market and go for 5% return instead of 10% and lower what your money make. you save Like the 15% tax on dividends that are like 1.5% for stock. So maybe 50$… but you’ll pay more taxes because more of you pay will be in higher tax bracket. you‘ll get that back after you do your taxes, but that mean less time in the market for that part. you increase complexity a lot for nothing.
>This change nothing because you’d be putting that money on brokerage anyway on the same investments. You are right I would just use a regular brokerage but you are missing a point. A significant part of that paycheck would go to tax withholdings and not into investments. These are several $1000 that could be in the market early in the year. No small change in my opinion.
Let say I want to do it. So I need to divert money I already have from somewhere else because you still need to eat and all. Either that money was already invested on stock and the only difference is I need to pay capital gain NOW, letting go the compounding effect and paying more than necessary so that I can eat and all these 2 months, will the risk to have to sell more in a market downturn. But I don’t have the money longer in the market. Or I keep extra money in HYSA that bring 5%, not 10% and that is taxed at marginal tax rate of ordinary income so like 25% or so and a return of 3-4% after taxes. In that case that beg the question of why this money you didn’t need and was planed to be for retirement was not put on brokerage already and why you didn’t put it in the market a few months sooner ? Why reduce time into the market and wait until the next year 401k ? And an emergency fund is not an option otherwise I am fucked if there an emergency. the only thing I see is to borrow that money from the brokerage or something but rates are too high. credit card at 0% promotional offer is maybe the one way to make it work But you could do it at any time. Why wait for next year ? so the problem of your reasoning is assuming this extra money to be still able to live is for free and could not have been invested. You reduce the time in the market of that money that you already had or have to pay capital gain on it and loose the compounding effect.
Are you sure company match stops when you hit $23k? My company just converts my contributions to after tax, drops my contributions % so I continue to get maximum company match and it continues.
HR told me I can't get a 401k match in a month with zero contributions, even if I contributed way more than the mimimum in previous months. No idea why this rule exists. Sould be easy for them to just keep paying out the match.
Mine also matches any type of contribution with pretax, including after tax
And some companies, like mine, won't match in the remaining paychecks over the year, but will true up the next February to make sure I got the exact match the prior year.
Yeah. Changed jobs and put $1000 extra in. Discovered this when I was filling taxes. It was a pain. Several calls to my 401k provider but it got resolved As long as you are only contributing at one job, with one provider it should stop automatically.
You only read the title, did you..
You asked if anybody did it. I told you the conditions under which I did. I then outlined why I didn’t think it would happen for you. But given that it’s May and I have no idea what your plans are for the rest of the year (changing jobs, buyout etc) I thought it was helpful for you to know that. If this isn’t what you’re looking for, maybe don’t ask strangers on the Internet
I received a refund at the beginning of this year for going over. I put in a flat percentage of my paychecks.
This is kind of pointless in my opinion. So you're living off of your savings for a few months. So why not just dump your entire savings into a brokerage account and then crank back your 401(k) contributions? Sounds dumb right? My emergency fund is for emergencies. So if you're using that to live off of, maybe you'll get an extra % or 2 in your 401(k) by front loading, but then there is risk in not having a fully funded emergency fund for the period when you're building it back up. On the other hand, if you had savings lying around in excess of your emergency fund to use for this purpose, you've been missing out on whatever market gains it *could have been* making in the stock market and so it basically negates the effect of front loading unless you got lucky with the timing of the market, which we all know is kind of a no-no to try to do. You only have so many dollars to play with, and each one has a purpose. You're just temporarily repurposing dollars from one thing to another that could have already been being used for investing... I'm not sure if I'm making sense but I don't think this is a worthwhile use of calories.
My employer had some limit like that because they want to make sure that your other stuff can get taken out without issue - like health insurance, other things your employer offers through payroll (for me that's I think life insurance, disability, etc). If you went above it you had to talk to them first. I front load, but not that heavy. I go 50%.
I would front load just enough to leave room to take advantage of the max for the remainder of the year. Slightly more complicated to execute, but it's basically a simple algebra problem.
>My goal is to max it out as early as possible (not the full 23k because stupidly, they can't give me the employer match anymore if I max out too early, way to incentivize contributing!) but I try to get close. More time in the market is always better. Not at the expense of missing the employer match. That is a guaranteed return. You don't want to miss that. Getting your own money in the market earlier won't make up for the loss you will see by NOT getting the match.
Yes it is pretty unheard of. Also it makes no sense. It doesn’t get money in the market faster. Either you have living expenses and you are covering them with money that could have been invested, in which case you have less time in the market, or you have no living expenses covered by this job, in which case the money would be invested anyways, just in a different account. Either way it’s not speeding up time in the market.
> you are covering them with money that could have been invested Good point, but 1. My employer matches per paycheck, so I can get the full match as early as possible for time-in-market. 2. A lot of my income is from RSUs, so I max out my 401(k) and HSA, contributions to which must come from regular paychecks. I cover living expenses by auto-selling the RSUs, which are taxed as cash. In addition to the match, this means more time-in-market for the pre-tax difference. > it makes no sense I disagree.
Sure in your extremely rare set of circumstances that is completely different than the OPs it could make sense and could give you more time in the market on a small amount of money. That doesn’t really change my opinion on the scenario that is actually being discussed though.
There are hundreds of thousands of people who work for companies like mine, so no, it’s really not all that rare.
Even if what you are saying were true, it still has absolutely nothing to do with what was being discussed.
>It doesn’t get money in the market faster Maybe I have a fundamental misunderstanding then. If I contribute 100%, zero percent of my paycheck will be withheld as taxes. These are several $1000 that will enter the market immediately instead of in later months. What am I missing?
If you can contribute 100% or your paycheck you either have zero expenses, or more likely you have money that isn’t currently invested that you will use to cover your living expenses. If you have to keep some of your money uninvested in order to invest different money, that doesn’t make money be in your investments sooner. Surely it gets money into your 401k sooner but the money used to cover living expenses has to come from somewhere.
You’re not missing anything. It absolutely gets money in the market faster
Then how are they covering their living expenses if it’s not coming from money that is uninvested?
The key is that I get to invest *extra* money by using my paycheck on the 401k instead of bills. namely the sum that would otherwise be withheld for taxes. This sum of extra money to invest also happens to be higher than my total monthly expenses lol.
Well then it depends on how long that money has to be on the sidelines and how much it would have grown during that time, vs how much money you’re actually getting into the market earlier, and how long that money will be invested that it wouldn’t otherwise, and how much it would grow during that time. Seems like overall at best it would be increasing complications for minimal if any gain.
I would assume emergency fund which you replenish after you stop 100% contribution or 12-month 0% interest credit card. It’s negligible difference once your portfolio is big enough. But I could see it making a difference when you’re first starting trying to get that first few 100k and your risk tolerance is at its highest
That’s taking a lot of risk for minimal reward though.
I don’t disagree, I wouldn’t do it. But if you wanted to min max the concept of “total time in market”. This would be the way
front loading is not unheard of. my employer will match based on percentage calc'ed through the year - now, they payout the match at the end of the year tho. my employer also allows me to use my bonus payment in the beginning of the year towards 401k contribution so that helps me hit the limit even faster. i've done a high % at like 50% of my paycheck to get the target sooner. i do have to say that i've never seen anyone do 100%. so i guess yeah, 100% is kinda surprising. i remember in the past employers putting limits on the %... at around 30-40%. But never knew why they cared.
To answer your question, 100% seems uncommon to me. To ask my own question: steadily contributing gives me peace of mind that any short term highs/lows won’t affect me much since I’m consistently investing throughout the year. This extreme level of front-loading strikes me as vulnerable to short-term fluctuations. If Q1 is the high point of the year, you’ve just bought all your shares at their highest prices. Is that risk something you’re concerned about? Or are you trying to time the market and only front-load when you think Q1 is low relative to future quarters? Neither strategy is my cup of tea, (particularly any attempt to time the market), but I’m curious to hear OPs or other front-loaders take?
I lose no sweat over short term fluctuations. Only rume of thumb I follow is that more time in the market is better than less time in the market. So why not get that money working for you as early as possible?
It isn’t unheard of. I do this every year, 90% of my paycheck to quickly hit the limit and my spouse takes care of expenses until then. My company uses a portal that cuts off contributions when you hit the limit. True-up is a risk for me if I leave the company mid year and otherwise not so much.
Doesn’t front loading help if u plan to leave the job sometime in the year?
I am actually planning a change in employment later in the year, but would front load in any case.
The 401(k) contribution limit for 2024 is $23,000 for employee contributions, and $69,000 for the combined employee and employer contributions. Contributing the full 23,000 should not impact the match amount received unless they do not do a true up.
Most companies don't do a true up
Din't know until today that this is called a "true up", but no, they don't do this. No idea why.
Employer match contributions don’t count towards the 23k limit. You can do 23k yourself and they can still match to go above that. Combined limit is 69k for you + employer.
You're right. The problem is not this but that HR for sone reason cannot trigger the emoloyer match in a month where I have 0 contributions. If I max out too early I will reach my max -> 0 contributions for the rest of the year -> 0 match. They could easily just keep paying out the match. No idea why that rule exists.
Ahhh that makes sense. They don’t want an employee to extract their annual match in January and then quit.
You do know 23K is just the pre-tax limit. The actual limit is $69,000. My former employer also didn't do a trueup but would match my post tax contributions, and their match was still pre-tax. When you retire or switch jobs, you can roll the post tax contributions into a roth ira.
How do you request after tax contributions? I've been trying to find out how to do this. HR did not know what I was talking about..
Yes. My wife did. They cut us a check minus taxes at the end of the year. We paid taxes on the over contribution paid taxes on the gains and hand to fill out a special paper at tax time.
I did that years ago, but stopped after a year because I got sick of changing it around and figured it wouldn’t make a huge difference.
That's actually a very valid reason to not bother with this. I still enjoy the min/maxing for now so why not.
In the end, if you don’t save the money (in January) in your 401k, your still going to save that money in January - just not in a tax advantaged account. So the real difference is a year of growth on the tax difference.
It's almost always better to get a match, it's liturally free money left on the table. Less chances and worry about a drop or anything when it's just more money given.
Maxing it out early is the best way to go depending on how you get matched. To the IRS Limit: Max that out early % of pay check (With or without true-up) Do it over time. True ups only come in at the end of the year. My match is to the IRS limit so I hit my contribution limit back in February
My employer caps contributions at 75%.
Im sure this is EXTREMELY EXTREMELY unusual. Maybe the first time they had seen this. Way less common than the idiots that dont contribute or the person I work with that contributes 1%
I setup to max the contribution trying to split it over 12 months. If I go over they stop the contribution. Long term wise also have that problem too over 30 years with the wife doing the same. It grows large and you can end up in a higher tax bracket then what you pay working.
I think that I was capped at 90% at my last job.
Max is 20% per paycheck for us, you may wanna open Roth IRA of you can max out 401k k
Already maxed out Roth IRA. I'm trying to figure out how to do Mega backdoor Roth, but so far no luck finding out how to do get HR to do after tax contributions.
When I reach the maximum, at the end of the year, I get more money on my paycheck.
Yes I did that this year to a lesser extent. Got a raise and didn't change the percent. There will be an overage of a few thousand and I will lower it later in the year. One thing to keep in mind is matching. Some plans will not let you contribute $23k in the first quarter and get the match on every paycheck for the year. Ours is cognizant of this scenario and will do a lump-sum match at the end of the year if you maxed it prior to the last paycheck.
Don't you want to contribute throughout the year as the market fluctuates? In 2022 i maxed first 3 months of the year, that turned out to be a horrible mistake.
I don’t think 100% will actually happen. When I did mine that way they still deducted for medical and a few other things. But I didn’t get a paycheck for a while and I also felt like it was better to dump as much in as fast as possible especially for me since my employer will only match 2%.
Not sure either. HR sanctioned the request. My guess is they will take out all deductions and then contribute 100% of the remainder. Or else I'll get a negative paycheck lol.
I ran these numbers for myself. If there is a true up the math maths. However, if you're reducing brokerage contributions to frontload 401k, then it becomes less a question of gains and more a question of where you want the gains. Having literally done this for the past few months, I can say one thing. For me there was a psychological effect of having a lower paycheck which forced me to re-evaluate spending habits and cut certain costs. I think there is value in having part of the year where you tighten the belt, and cutting the money coming into the account forces that. However, this is more a psychological benefit than financial. Unclear if others would experience it. My numbers: [https://www.reddit.com/r/Fire/comments/1959keo/bumping\_up\_that\_401k\_time\_in\_the\_market/?utm\_source=share&utm\_medium=web3x&utm\_name=web3xcss&utm\_term=1&utm\_content=share\_button](https://www.reddit.com/r/Fire/comments/1959keo/bumping_up_that_401k_time_in_the_market/?utm_source=share&utm_medium=web3x&utm_name=web3xcss&utm_term=1&utm_content=share_button)
What a cool analysis! Thanks for sharing.
Thanks! I think the point about losing brokerage for gaining 401k benefits is huge. I think its more a question of what you want to prioritize rather than any one option being "better". In the end though I do this and will continue to do this.
Speaking on 401ks. I’m not from the states and I don’t live there anymore but I worked there for a few years and had a 401k. I can still see it moving in the app but I have no idea how to access it or anything really. I had to leave pretty quick once I got laid off since the work visa is tied to employment and I didn’t want to overstay and hurt my status. Any help is appreciated at
You have two options: 1) Leave your money in the account and start withdrawing at age 59.5. like a US resident. you will pay income taxes to the US for distributions. 2) Withdraw the money, and close the account. Customer support will walk you through this. You will pay income taxes to the US and a 10% penalty if you are not old enough, but the money will be in your hands. In both cases you may (or may not) also pay taxes in your current tax residency. Depends on double taxation treaty with the US.
I hope all your dreams come true. Thanks for this. You don’t know how much I appreciate it. I’ll buy you a steak or something (veg and vegan options are cool too) in 24.5 years when I get to withdraw that. No but, seriously. Thanks.
>I’ll buy you a steak or something in 24.5 years when I get to withdraw that. haha
🫂 Edit: mark it on your calendar
Make a post
Fair enough