How to max out 401k

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raamakoti
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How to max out 401k

Post by raamakoti » Tue Jan 16, 2018 12:47 pm

How to max out 401k without going over the limit set by IRS.
based on my pay it is easy to calculate but some monetary rewards and bonus throw me of balance. How to offset for these since they are not predictable. Last year I got $1000 reward for extra contribution to the company and bonus of 8.75% of gross pay.
I can not match every cent of allowed 18,500 but want to get as close as I can.
What happens if you end up putting say $400 over the allowed amount.
Thank for your help

mortfree
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Re: How to max out 401k

Post by mortfree » Tue Jan 16, 2018 12:50 pm

Your HR department should automatically stop your contribution at the max.

Just be sure you have After tax (spillover election) contributions turned off for when you get to that point.

bloom2708
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Re: How to max out 401k

Post by bloom2708 » Tue Jan 16, 2018 12:51 pm

Unless you work for a very small company, your 401k deduction will stop when you hit $18,500.

I set mine for 20% and it hits the max a different times due to bonuses/raises, etc.

Pick a percentage that will get you close without the bonus. The bonus may put you over in late November or in December. Then your paycheck will be bigger, but you will lose the pre-tax tax savings.
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

raamakoti
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Re: How to max out 401k

Post by raamakoti » Tue Jan 16, 2018 1:09 pm

Thank you for your feedback. I work for a decent size company and fidelity manages our 401k.
Does the 18500 include 4% employer matching as well or is that separate?

Jack FFR1846
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Re: How to max out 401k

Post by Jack FFR1846 » Tue Jan 16, 2018 1:12 pm

$18.5k is only employee contributions. Employer contributions are not included in that amount.

With Fidelity, it's wicked easy to change your contributions in net benefits. I'm about to go in now and make sure it's matched up with the upcoming year. Last year, bonuses and added income turned out to be about 70% of my normal base pay. The 401k contribution ended right at $24k.
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Earl Lemongrab
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Re: How to max out 401k

Post by Earl Lemongrab » Tue Jan 16, 2018 1:26 pm

mortfree wrote:
Tue Jan 16, 2018 12:50 pm
Your HR department should automatically stop your contribution at the max.

Just be sure you have After tax (spillover election) contributions turned off for when you get to that point.
Why? If the plan allows after-tax, then that's potentially a powerful added benefit (Mega Backdoor Roth). It should be investigated rather than ignored.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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Re: How to max out 401k

Post by placeholder » Tue Jan 16, 2018 1:28 pm

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Last edited by placeholder on Tue Jan 16, 2018 2:14 pm, edited 1 time in total.

miamivice
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Re: How to max out 401k

Post by miamivice » Tue Jan 16, 2018 1:29 pm

Earl Lemongrab wrote:
Tue Jan 16, 2018 1:26 pm
mortfree wrote:
Tue Jan 16, 2018 12:50 pm
Your HR department should automatically stop your contribution at the max.

Just be sure you have After tax (spillover election) contributions turned off for when you get to that point.
Why? If the plan allows after-tax, then that's potentially a powerful added benefit (Mega Backdoor Roth). It should be investigated rather than ignored.
Because there is a Boglehead perception that $18,000 a year is the appropriate amount to set aside into retirement. Anything less means one eats dog food in retirement; anything more means an overstuffed retirement.

This magical $18,000 / year amount is the correct amount for everyone, regardless of current income, saving habits, spending habits, or ideas of what they want to do in retirement.

Smorgasbord
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Re: How to max out 401k

Post by Smorgasbord » Tue Jan 16, 2018 1:39 pm

miamivice wrote:
Tue Jan 16, 2018 1:29 pm
Because there is a Boglehead perception that $18,000 a year is the appropriate amount to set aside into retirement. Anything less means one eats dog food in retirement; anything more means an overstuffed retirement.
I though it was 18,000 a year means you're still eating dog food in retirement, but at least it's the name brand dog food. 18,000 in the 401k plus another 5500 in the Roth IRA is needed to qualify for people food. :D

thangngo
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Re: How to max out 401k

Post by thangngo » Tue Jan 16, 2018 1:48 pm

Smorgasbord wrote:
Tue Jan 16, 2018 1:39 pm
miamivice wrote:
Tue Jan 16, 2018 1:29 pm
Because there is a Boglehead perception that $18,000 a year is the appropriate amount to set aside into retirement. Anything less means one eats dog food in retirement; anything more means an overstuffed retirement.
I though it was 18,000 a year means you're still eating dog food in retirement, but at least it's the name brand dog food. 18,000 in the 401k plus another 5500 in the Roth IRA is needed to qualify for people food. :D
Yeah... and add another 20,000 saving in taxable brokerage and now you can get some high quality gourmet food.

mattshwink
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Re: How to max out 401k

Post by mattshwink » Tue Jan 16, 2018 1:50 pm

As everyone as said, HR should automatically handle and stop any pre-tax contributions once they hit $18,500 (only your contributitions count, not company match).

I had a situation a few years ago where I worked for two companies in 1 year and between the two I accidentally contributed over the max. I simply contacted my HR, and they distributed the excess to me per IRS rules. I work for a small company and it was pretty painless and easily done. So even if you somehow overcontribute (with two jobs, for example) it is correctable.

CT-Scott
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Re: How to max out 401k

Post by CT-Scott » Tue Jan 16, 2018 1:51 pm

OP, as others have stated, many (most?) companies' HR departments will usually handle "shutting it off" once you hit the maximum allowable limit. The 4% from your employer is over and above the $18.5K limit.

One thing you may want to look into: If your company matches 4%, do they have a maximum limit? If no limit, then you should also find out if they do a true-up. What I'm talking about here is that if you contribute 20% of your paycheck towards your 401k and you make 200K/year, you'll hit that $18.5K limit early in the year. After that point, your company will stop matching 4% in subsequent paychecks (since there's nothing for them to "match" anymore). But if the company offers a true-up, then after the end of the year, they'll calculate what they *would* have contributed had you been evenly contributing towards that $18.5K limit throughout the entire year.

If your company doesn't do a true-up (or the people you talk to aren't sure, or you simply don't want to have to wait until the following year for them to do the true-up), then it's in your best interest to try to calculate how to spread that $18.5K evenly throughout the whole year.

In my case, my company does a true-up, but they also have a maximum limit which gets hit. I still try to evenly distribute my contributions, just to make my regular paychecks more consistent. Also, sometime around November, I confirm that I'm on track to hit the annual limit. If I miscalculated earlier, I can then make a change to my contribution rate and jack it up to make sure I max it out by my last paycheck. Sometimes this gets a bit tricky, as changes to your contribution rate can get processed slowly, and might not get implemented until after the next paycheck.

Isabelle77
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Re: How to max out 401k

Post by Isabelle77 » Tue Jan 16, 2018 2:36 pm

My husband's 401K requires a contribution every paycheck in order to get the employer match. We set it at a lower percentage (but enough to get the full match) at the beginning of the year before bonuses and before he's reached the social security tax limit. Once his bonus is in and the SS limit reached we crank it up higher. Made it to $17,878 this year, closest we've ever been.

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obafgkm
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Re: How to max out 401k

Post by obafgkm » Tue Jan 16, 2018 3:20 pm

I guess I’m lucky that my employer doesn’t go by percentage but a fixed dollar amount. I get paid twice a month. I can change my contribution amount through the employee portal online whenever I want. I will contribute $1050/pay period through May, and $1000/pay period through the end of the year. That way I know that I’ll hit $24500 exactly.

mortfree
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Re: How to max out 401k

Post by mortfree » Tue Jan 16, 2018 6:00 pm

Earl Lemongrab wrote:
Tue Jan 16, 2018 1:26 pm
mortfree wrote:
Tue Jan 16, 2018 12:50 pm
Your HR department should automatically stop your contribution at the max.

Just be sure you have After tax (spillover election) contributions turned off for when you get to that point.
Why? If the plan allows after-tax, then that's potentially a powerful added benefit (Mega Backdoor Roth). It should be investigated rather than ignored.
In the OP’s question above he was wondering about going over by $400. I assumed he wouldn’t want that to go to after tax. YMMV

Were the dog food comments by others targeted at me?

livesoft
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Re: How to max out 401k

Post by livesoft » Tue Jan 16, 2018 6:09 pm

True-up is important because if your company does not do the true-up and only matches on a per paycheck basis, then getting the maximum possible match is more difficult than contributing the maximum possible to the 401(k). That's because if one hits the maximum possible deferral (aka employee contribution) before the last paycheck, then one misses out on the company match.

And this can easily happen if one is using percentage of pay for the deferral. And if one is using a set dollar amount per paycheck, then one can also be screwed on employer match with a bonus check that is large because the set dollar amount may be less than the amount needed to get the max match for that bonus.

My spouse's employer does not do a true up and there are 2 extra bonus checks in December, so she has to change her W-4 in January, in early December, and again in late December in order to get the maximum possible deferral AND maximum possible company match. I'll bet that less than 1% of employees in her company even know how they might be missing out. Furthermore, if she wants to front-load 401(k) contributions in Jan-Jun, she has to be careful to not overcontribute, so that each paycheck and the two unknown-amount bonus checks will get the full company match for every single pay period.
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raamakoti
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Re: How to max out 401k

Post by raamakoti » Thu Jan 18, 2018 11:18 am

Thank you all for your replies, appreciate the help
Our company does not offer matching after reaching out maximum contribution limit, so I would loose on company matching. So best strategy would be to wait for bonus in April to July. And then change % to get close to 18,500.

fatlever
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Re: How to max out 401k

Post by fatlever » Thu Jan 18, 2018 11:40 am

bloom2708 wrote:
Tue Jan 16, 2018 12:51 pm
Unless you work for a very small company, your 401k deduction will stop when you hit $18,500.
I wouldn't go with that assumption. This wasn't true at a LARGE company I worked at. I am now with one of the biggest financial services companies which handles retirement accounts for tons of companies. When I joined a few years ago I assumed I'd get a true up because I'd always did when maxed out early in other companies but I was really surprised and lost out on some free money when I found out they didn't.

My advice is to try to get close to the max as possible yourself - it doesn't matter if you're short by a few hundred. Also, find out if you have a true up and spread the matching till end of the year if you don't.

bloom2708
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Re: How to max out 401k

Post by bloom2708 » Thu Jan 18, 2018 11:49 am

fatlever wrote:
Thu Jan 18, 2018 11:40 am
bloom2708 wrote:
Tue Jan 16, 2018 12:51 pm
Unless you work for a very small company, your 401k deduction will stop when you hit $18,500.
I wouldn't go with that assumption. This wasn't true at a LARGE company I worked at. I am now with one of the biggest financial services companies which handles retirement accounts for tons of companies. When I joined a few years ago I assumed I'd get a true up because I'd always did when maxed out early in other companies but I was really surprised and lost out on some free money when I found out they didn't.

My advice is to try to get close to the max as possible yourself - it doesn't matter if you're short by a few hundred. Also, find out if you have a true up and spread the matching till end of the year if you don't.
That is fine. Your statement speaks more to getting the maximum match (over all 12 months) than it does that your pre-tax contribution will stop when it hits $18,500 in November or December. Maybe I'm not reading your response right.

The BEST solution is to research your own companies offerings and matches and fine print. If the majority just keep on taking out pre-tax after hitting the $18,500 limit, then I am certainly in error. :?
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

lstone19
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Re: How to max out 401k

Post by lstone19 » Thu Jan 18, 2018 12:03 pm

Definitely find out exactly how your employer matches. Mine (now retired from) did a true true-up so I front-loaded my contributions early in the year and the company continued to match every paycheck.

But my wife's is far more complicated. First off, it's a temp accounting firm and although she can count on two hands the number of weeks she hasn't been on a contract in the 15 years she's been with them, there's no guarantee that she'll be on a contract later in the year. And the company does not due a true-up but rather matches on a fiscal quarter basis with a lump sum match contribution after the quarter ends. Worse yet, the fiscal quarters do not match calendar quarters - December starts a new fiscal quarter. Match is only on the regular contributions, not what you designate as catch-up contributions (which are two different deductions in the company's view). So she front-loads the catch-up early in the year while setting the regular contribution rate at a percentage that should have it end in December (and ideally qualify for full match for December should she not work the rest of the fiscal quarter). Yes, it means more detailed tracking and occasionally changing the contribution percentage but we have spreadsheets to track it and tells us what the desired percentage is for the remainder of the year assuming working 40 hours a week for the rest of the year. But so far, we always hit the number and they stop the contributions when the max is hit.

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