401k % contributions........

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EmptyWallet
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401k % contributions........

Post by EmptyWallet »

Since it seems like a lot of people here believe "lump sum" is better than DCAing, wouldnt it make sense then to put your 401k contribution as a percentage of pay as high as you can possibly stand it?

i.e., 20% so it all goes in sooner in the year, rather than 10% all year around?

This is assuming you're going to max it out each year. Wouldn't that be better, since more of your money spends a longer time in the market?
Harold
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Post by Harold »

Yes.

Many of us do precisely that. (Main thing to watch out for is that you don't lose out on employer match later on in the year by doing so.)
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interplanetjanet
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Post by interplanetjanet »

I do this - the highest my employer allows my contribution to go is 50%. I normally get a bonus in February and would prefer to be able to just have them put it all towards my 401k contribution, but since they won't separate it out I just keep the contributions flowing until I hit my cap.

My employer does do a match "true up" periodically during the year to ensure that no matching funds are lost, but not all do. That's the term I'd use when getting confirmation from your employer or their 401k plan (preferably in writing).

-Janet
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EmptyWallet
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Post by EmptyWallet »

interplanetjanet wrote:I do this - the highest my employer allows my contribution to go is 50%. I normally get a bonus in February and would prefer to be able to just have them put it all towards my 401k contribution, but since they won't separate it out I just keep the contributions flowing until I hit my cap.

My employer does do a match "true up" periodically during the year to ensure that no matching funds are lost, but not all do. That's the term I'd use when getting confirmation from your employer or their 401k plan (preferably in writing).

-Janet
I'm going to check that out. That's a good point I didn't think of. I can do up to 60% if I want I believe.
wldlndfirefghtr
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Maybe a dumb question...

Post by wldlndfirefghtr »

...but does your employer match count towards the $16,500?

I.E. I contribute 16,500, and still have my employer match the 6%. (I'm thinking yes).

I'm trying to find a way to get even closer to the match, with out living too frugal.

Thanks,

Jason
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interplanetjanet
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Re: Maybe a dumb question...

Post by interplanetjanet »

wldlndfirefghtr wrote:...but does your employer match count towards the $16,500?

I.E. I contribute 16,500, and still have my employer match the 6%. (I'm thinking yes).
The $16.5k limit is for your pretax contributions only. The total of your contributions and the contributions from your employer cannot exceed $49k or your gross salary for the year.

Edit: If you're 50 or over, you can make an additional $5500 catch-up contribution per year.

-Janet
wldlndfirefghtr
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Post by wldlndfirefghtr »

How does one get up to 49K into a 401k (granted besides the obvious high salary income)

Got the 16,500 pretax.

Thanks
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EmptyWallet
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Post by EmptyWallet »

wldlndfirefghtr wrote:How does one get up to 49K into a 401k (granted besides the obvious high salary income)

Got the 16,500 pretax.

Thanks
I'm curious to that as well. Would you just have to have some kind of awesome employer match?
knowledge
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Post by knowledge »

I would do this, but my employer does matching per pay period, so if I max out too early I lose a portion of my match.
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rob
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Post by rob »

wldlndfirefghtr wrote:How does one get up to 49K into a 401k (granted besides the obvious high salary income)
Not obvious at all... Anyone that falls over the HCE line is limited in a lot of plans - a lot will not be able to get close to even the 16K limit.

Would need a great employer.....
| Rob | Its a dangerous business going out your front door. - J.R.R.Tolkien
livesoft
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Post by livesoft »

wldlndfirefghtr wrote:How does one get up to 49K into a 401k (granted besides the obvious high salary income)

Got the 16,500 pretax.

Thanks
If you are self-employed, then you "the employee" contributes $16,500 and you "the employer" contributes the rest. You "the company" needs to be very profitable to be able to do this.
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EmptyWallet
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Post by EmptyWallet »

livesoft wrote:
wldlndfirefghtr wrote:How does one get up to 49K into a 401k (granted besides the obvious high salary income)

Got the 16,500 pretax.

Thanks
If you are self-employed, then you "the employee" contributes $16,500 and you "the employer" contributes the rest. You "the company" needs to be very profitable to be able to do this.
Ahhhhhhhh.
hsv_climber
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Post by hsv_climber »

You don't need to be very profitable. I have a friend who is self-employed and contributes 49K to his solo 401K in order to avoid paying taxes (or defer paying taxes to be correct).
yobria
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Post by yobria »

Yes, I recommend this strategy. Another benefit is - if you quit during the year, your contribution will already have been made.

Nick
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Marmot
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Defined contribution Pension

Post by Marmot »

wldlndfirefghtr wrote:How does one get up to 49K into a 401k (granted besides the obvious high salary income)

Got the 16,500 pretax.

Thanks
My wife's company moved to a defined benifit pension about 2 years ago. The amount they were putting in to the defined benefit was switched into her 401K as the defined contribution. My company is going to that format in 2012.
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SSSS
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Re: 401k % contributions........

Post by SSSS »

EmptyWallet wrote:Since it seems like a lot of people here believe "lump sum" is better than DCAing, wouldnt it make sense then to put your 401k contribution as a percentage of pay as high as you can possibly stand it?
It makes sense if your cash flow situation allows it. Receiving $0 paychecks would make most people uncomfortable, but if you can reduce your take-home pay to just enough to not have to tap into your emergency funds, that's a good move.
Harold wrote:(Main thing to watch out for is that you don't lose out on employer match later on in the year by doing so.)
I'm not sure how common it is, but my company does an audit at the start of each year and reimburses you if you "missed" matching contributions because of this. They pretend the contributions were spread evenly throughout the year (even if you weren't employed the entire year) and calculate how much matching contribution you should have received; if you received less they deposit the difference into the 401k.
wldlndfirefghtr wrote:How does one get up to 49K into a 401k (granted besides the obvious high salary income)
You can also make after-tax contributions to your 401k. Typically you can designate three different types of contributions: Pre-Tax (Deductible), Roth, and After-Tax. There are also Matching contributions, but you don't directly control those.

Pre-Tax + Roth contributions may not exceed $16,500

Pre-Tax + Roth + Matching + After-Tax contributions may not exceed $49,000

So if you make $16,500 in Pre-Tax contributions and your employer makes $8500 in Matching contributions, that's $25,000 -- you can make $24,000 in additional After-Tax contributions.

If your plan allows in-service rollovers of after-tax funds, you can roll those funds to an IRA (my plan allows one such rollover every year), immediately convert to Roth, and pay not tax except on the gains.

My strategy is to get my Pre-Tax contributions done in the first half of the year, then switch to After-Tax contributions for the second half of the year, roll the After-Tax contributions to Vanguard each January and immediately to convert to Roth along with my yearly IRA contribution.
foxfirev5
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Post by foxfirev5 »

To get to the 49k max. your employer would need to provide a healthy match. However, years ago my employer eliminated their defined pension plan and instead makes an annual fixed contribution in addition to the match. This is based on a fixed % of wages. Not that I'm at that level, but I can see how the max 49k could be reached.
hsv_climber
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Post by hsv_climber »

foxfirev5 wrote:To get to the 49k max. your employer would need to provide a healthy match. However, years ago my employer eliminated their defined pension plan and instead makes an annual fixed contribution in addition to the match. This is based on a fixed % of wages. Not that I'm at that level, but I can see how the max 49k could be reached.
It can't with % - based approach, because of "highly compensated employee" rule.
http://en.wikipedia.org/wiki/401(k)#Hig ... _.28HCE.29
Default User BR
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Post by Default User BR »

foxfirev5 wrote:To get to the 49k max. your employer would need to provide a healthy match.
Not necessarily. The 16.5k is only the limit for "employee elective deferrals", i.e. pre-tax. The employee can also make after-tax (non-Roth) contributions. Naturally, the plan would need to support that.



Brian
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EmptyWallet
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Post by EmptyWallet »

I just checked, they make a true match, so it's not limited by a certain percentage of that specific pay period, so if I contribute some huge amount at the beginning of the year, the entire match is put in at that time.

Sounds good to me!
ilisira
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Post by ilisira »

Harold wrote:Yes.

Many of us do precisely that. (Main thing to watch out for is that you don't lose out on employer match later on in the year by doing so.)
But in case you switch jobs, and had already contributed the max. with the former company, one would lose the match from the new company for that year.
Default User BR
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Post by Default User BR »

ilisira wrote:
Harold wrote:Yes.

Many of us do precisely that. (Main thing to watch out for is that you don't lose out on employer match later on in the year by doing so.)
But in case you switch jobs, and had already contributed the max. with the former company, one would lose the match from the new company for that year.
Maybe not. The new company might allow after-tax contributions and match those. In general though, it's a reasonable concern.



Brian
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