My wife doesn't get a 403b match, so last year we maxed it out early and then had a bigger paycheck in the last 1/3 of the year. For me, I put more in early to my 401k, then reduced after a bonus in Q2 to make even payments throughout the year to ensure I got the max match.
While I liked maxing out early and being in the market as early as possible, in planning ahead for 2015 though, I'm considering even payments for my wife. The cash flow isn't super important to us, but part of me just likes the simple mental math of having the same paycheck 26 times per year. Honestly, it is probably 6 one way half dozen the other, but just curious how others think about it. I'll bet we have a 50/50 split here.
For our backdoor roths, I do those on January 2nd, since they don't come out of our paychecks, though I suppose you could make the same argument for that.
Do you optimize for consistent cash flow? (max 401k early)
Re: Do you optimize for consistent cash flow? (max 401k earl
I don't really care about even paychecks. Mine change a lot anyway. I like maxing it out early so it's done. My current company does a true-up match in March if you're still employed with them and otherwise you only get the match for each paycheck. Some years I contribute evenly, others I max it out early.
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Re: Do you optimize for consistent cash flow? (max 401k earl
I use to max out as early as possible until a co-worker educated me on how our company match worked. Apparently the company will match 5% on the first 6% contribution, on a paycheck by paycheck basis. The fact that it was paycheck by paycheck meant that I was missing out on 8-9 months per year of company match. This coming year I have my contribution set to 6% pre-tax, 20% post-tax. Once I hit the September timeframe I will scale up my contribution if I am not on target to max out for that year. This way I get ~$7k more in company match per year!
I always urge people to have their plan sponsor walk them through the mechanics of the company match since this experience.
I always urge people to have their plan sponsor walk them through the mechanics of the company match since this experience.
Re: Do you optimize for consistent cash flow? (max 401k earl
When I was still working this was the case at my MegaCorp, also. What i did was start the year at a fairly high contribution rate then lowered it in a few months so that I could contribute the 6% the rest of the year. I left myself some headroom (for unexpected bonuses and such) so that I would have to increase my contribution a bit in December to reach the year's maximum.Ignatious P. Daily wrote:I use to max out as early as possible until a co-worker educated me on how our company match worked. Apparently the company will match 5% on the first 6% contribution, on a paycheck by paycheck basis. The fact that it was paycheck by paycheck meant that I was missing out on 8-9 months per year of company match.
The only reason for higher early year contributions was if I ended up changing jobs or getting laid off, I wanted to have already contributed nearly as much as possible.
I retired in April one year and I knew I was going to do that before the year started. So that year I maxed out my annual contributions by my retirement date. However, I made sure to do the final contribution of at least 6% on all checks for the year, including my last one.
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Re: Do you optimize for consistent cash flow? (max 401k earl
It's definitely worth understanding the details of your company match model. They vary widely. Some have really stupid quirks. My company only matches a limited amount on a paycheck-by-paycheck basis, so I have to spread the contributions out across the full year to get the full match. What's really annoying is that they stop matching when you hit the over-50 "catch up" contributions (and they allocate to the standard 401K bucket first), so I can't just spread evenly across the full year if I want to get the most company match. So I have to try to back-load my contributions into December so I can get 11+ months of company match instead of 9. The alternative is to give up the over-50 extra tax-advantaged 401K space.
Re: Do you optimize for consistent cash flow? (max 401k earl
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Last edited by mwm158 on Thu Jan 08, 2015 11:47 am, edited 1 time in total.
Re: Do you optimize for consistent cash flow? (max 401k earl
My company does a "true-up" matching contribution for those that hit the max contribution earlier in the year. My spouse's employer does not, so she calculates the minimum to get the total match and then contributes extra early in the year until she switches to the minimum to get the total match by her last paycheck in December.
I always wanted to contribute the max as early as possible in case I decided to quit my job early in the year.
We do not optimize for consistent cash flow. When we are both contributing lots to our 401(k)s early in the year, we live off of late December dividends and selling equities with cap gains offset by carryover losses.
I always wanted to contribute the max as early as possible in case I decided to quit my job early in the year.
We do not optimize for consistent cash flow. When we are both contributing lots to our 401(k)s early in the year, we live off of late December dividends and selling equities with cap gains offset by carryover losses.
Re: Do you optimize for consistent cash flow? (max 401k earl
I maxed my 401k in February this year. My thinking is I can get more money into the market sooner this way because I do not pay income taxes on the money going into the 401k. I still pay the same amount in taxes, but the taxes are withheld later in the year. Double win in my book.
52% TSM, 23% TISM, 24.5% TBM, 0.5% cash