Large bonus at work paid in Jan 2014

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alwayshedge
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Large bonus at work paid in Jan 2014

Post by alwayshedge » Fri Dec 27, 2013 6:50 pm

I will be receiving my bonus in January 2014 and the bonus will be well over the annual 401k limit. Would it be wise to just max out the yearly 401k contribution in one shot when I receive this bonus? (17500) It would be pretax so I would save a fortune in federal taxes on this paycheck but wasn't sure if I am missing something.

Thanks guys!

gkaplan
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Re: Large bonus at work paid in Jan 2014

Post by gkaplan » Fri Dec 27, 2013 6:53 pm

How does your company match your contributions?
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alwayshedge
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Re: Large bonus at work paid in Jan 2014

Post by alwayshedge » Fri Dec 27, 2013 6:55 pm

100% match on the first 6%

Retread
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Re: Large bonus at work paid in Jan 2014

Post by Retread » Fri Dec 27, 2013 6:55 pm

Absolutely. I always contributed as quickly as possible.
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furwut
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Re: Large bonus at work paid in Jan 2014

Post by furwut » Fri Dec 27, 2013 6:55 pm

Many investors max out their tax deferred as earlier in the year as possible having observed that markets *ON AVERAGE* finish the year higher in December.

AlohaJoe
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Re: Large bonus at work paid in Jan 2014

Post by AlohaJoe » Fri Dec 27, 2013 6:58 pm

alwayshedge wrote:It would be pretax so I would save a fortune in federal taxes on this paycheck but wasn't sure if I am missing something.
Anything you save on this paycheck you'll end paying for elsewhere, since it is all just taxed as income at the end of the day. (Unless you don't normally max your 401(k).)

That said when I've been in your position I've saved straight away. Purely from a psychological point of view, it feels better to lock up the money sooner rather than later.

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LAlearning
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Re: Large bonus at work paid in Jan 2014

Post by LAlearning » Fri Dec 27, 2013 7:03 pm

alwayshedge, I think you misunderstood gkaplan's question. Some companies match regardless of when you put in your contributions (they determine it at the end of the year). Others choose to match each paycheck. So if you max-out half way through the year, you would only get half the match.

You need to know. If they match your 6% no matter what, then yes, dump it all in. Otherwise, you might need to space it out to receive the full match.
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alwayshedge
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Re: Large bonus at work paid in Jan 2014

Post by alwayshedge » Fri Dec 27, 2013 7:11 pm

LAlearning wrote:alwayshedge, I think you misunderstood gkaplan's question. Some companies match regardless of when you put in your contributions (they determine it at the end of the year). Others choose to match each paycheck. So if you max-out half way through the year, you would only get half the match.

You need to know. If they match your 6% no matter what, then yes, dump it all in. Otherwise, you might need to space it out to receive the full match.
Thanks for bringing this up as I honestly don't have a clue since in the past I have just split the contribution evenly between paychecks. I will give my HR dept a call monday to find this out.

Thanks!

livesoft
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Re: Large bonus at work paid in Jan 2014

Post by livesoft » Fri Dec 27, 2013 7:16 pm

Another term in this scenario is "top up". Our 401(k) matches only when you put in, but after the end of the year, the company does a "top up" to make sure one gets the full match. Of course, one has to be working for the company still at that time.

If one fills up the 401(k) in January, then retires in February that could be good.

If one fills up the 401(k) in January, but moves in February to another company with a better 401(k) and huge match, that could be bad.

If the stock market tanks for the rest of the year after one's contribution, that could be bad.
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alwayshedge
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Re: Large bonus at work paid in Jan 2014

Post by alwayshedge » Fri Dec 27, 2013 7:21 pm

livesoft wrote:Another term in this scenario is "top up". Our 401(k) matches only when you put in, but after the end of the year, the company does a "top up" to make sure one gets the full match. Of course, one has to be working for the company still at that time.

If one fills up the 401(k) in January, then retires in February that could be good.

If one fills up the 401(k) in January, but moves in February to another company with a better 401(k) and huge match, that could be bad.

If the stock market tanks for the rest of the year after one's contribution, that could be bad.
I think my employer does this as I remember receiving a rather large contribution to my 401k plan in April as wondering what that was for. This may explain that...

Grt2bOutdoors
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Re: Large bonus at work paid in Jan 2014

Post by Grt2bOutdoors » Fri Dec 27, 2013 7:29 pm

LAlearning wrote:alwayshedge, I think you misunderstood gkaplan's question. Some companies match regardless of when you put in your contributions (they determine it at the end of the year). Others choose to match each paycheck. So if you max-out half way through the year, you would only get half the match.

You need to know. If they match your 6% no matter what, then yes, dump it all in. Otherwise, you might need to space it out to receive the full match.
Not always, some companies perform a "true-up" at the end of the year or early in the following year to ensure if the participant has contributed the full required % of salary, they will receive the entire match. Of course, the timing difference may or may not make a difference in the account's total return performance.
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Tabaxus
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Re: Large bonus at work paid in Jan 2014

Post by Tabaxus » Fri Dec 27, 2013 9:24 pm

Are you sure that you can even have your bonus check put into your 401(k)? We can't at my company--only "ordinary" pay, not special payments like bonuses, reimbursements, etc.

Nukeboilermaker
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Re: Large bonus at work paid in Jan 2014

Post by Nukeboilermaker » Fri Dec 27, 2013 11:38 pm

The lump Sum could be profit sharing as well. My company matches 100% of 4% and if it is done each paycheck. If someone were to max out early they would loose out on the matching on the paychecks after. If company performance meets certain indicator points we also get a 401k profit sharing which just about doubled my employers match one year. As mentioned there is a huge variety of 401k logistics that is dependent to your company and position (my 401k benefits just changed due to moving from union to supervisor)

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NightOwl
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Re: Large bonus at work paid in Jan 2014

Post by NightOwl » Sat Dec 28, 2013 2:54 pm

alwayshedge wrote:
LAlearning wrote:alwayshedge, I think you misunderstood gkaplan's question. Some companies match regardless of when you put in your contributions (they determine it at the end of the year). Others choose to match each paycheck. So if you max-out half way through the year, you would only get half the match.

You need to know. If they match your 6% no matter what, then yes, dump it all in. Otherwise, you might need to space it out to receive the full match.
Thanks for bringing this up as I honestly don't have a clue since in the past I have just split the contribution evenly between paychecks. I will give my HR dept a call monday to find this out.

Thanks!
When you talk to them, you should also ask about the maximum percentage they will allow you to contribute to your 401(k) from any single paycheck. At my company the max is 60%. I do in general support maxing the 401k as early as possible in the year and then investing in taxable thereafter.
NightOwl
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