Changed Jobs; sanity check my Plan please

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Topic Author
airbornecal
Posts: 19
Joined: Sat Mar 13, 2021 4:09 pm
Location: Texas

Changed Jobs; sanity check my Plan please

Post by airbornecal »

Hi all. Typically I max out my 401k and Roth contributions each year, however I just changed jobs and am not eligible to contribute to the 401k Plan for 6 months. I've come up with a couple of options on how to handle this period of time bout I'd appreciate your thoughts and advice on what the best course of action might be to stay invested as much as possible. I'm still maxing my Roth and I already have my emergency fund established.

Option 1: Save the $ that otherwise would have been contributed to my 401k in savings and when I am eligible to contribute in the 401k (in 6 months), OVER contribute from my paycheck to make up for the lost time and utilize the money I saved to offset this over investment to pay bills, etc. The downside would be I'm not invested for 6 months.

Option 2: Invest the $ that normally would be contributed to the 401k each paycheck into my taxable account so that I'm not out of the market. The downside is that I would likely have additional tax consequences if I invest according to my IPS and although I could adjust my tax advantaged accounts accordingly that seems overly complex to maintain.

Option 3: ???

Thanks for any thoughts or advice!
gavinsiu
Posts: 4640
Joined: Sun Nov 14, 2021 11:42 am

Re: Changed Jobs; sanity check my Plan please

Post by gavinsiu »

airbornecal wrote: Wed Mar 13, 2024 3:55 pm Hi all. Typically I max out my 401k and Roth contributions each year, however I just changed jobs and am not eligible to contribute to the 401k Plan for 6 months. I've come up with a couple of options on how to handle this period of time bout I'd appreciate your thoughts and advice on what the best course of action might be to stay invested as much as possible. I'm still maxing my Roth and I already have my emergency fund established.

Option 1: Save the $ that otherwise would have been contributed to my 401k in savings and when I am eligible to contribute in the 401k (in 6 months), OVER contribute from my paycheck to make up for the lost time and utilize the money I saved to offset this over investment to pay bills, etc. The downside would be I'm not invested for 6 months.

Option 2: Invest the $ that normally would be contributed to the 401k each paycheck into my taxable account so that I'm not out of the market. The downside is that I would likely have additional tax consequences if I invest according to my IPS and although I could adjust my tax advantaged accounts accordingly that seems overly complex to maintain.

Option 3: ???

Thanks for any thoughts or advice!
Option 1: Do you normally max out your 401K contribution? If so, overcontributing early will may cause you to lose matching if your 401K does not have true up.

Option 2: I would likely pick option2.
terran
Posts: 3134
Joined: Sat Jan 10, 2015 9:50 pm

Re: Changed Jobs; sanity check my Plan please

Post by terran »

I would go with option 1 or maybe option 3: invest in taxable then sell to fund living expenses when you over contribute to fill the 401(k) once you're eligible to contribute. Since you'll be buying the the 401(k) it doesn't really matter what has happened in the meantime since you're not "really" selling, just transferring. Although, if there's been a loss you might not be able to afford to max the 401(k) and if there's been a gain you might owe some taxes. Or there's a 4th option if you can over contribute to fill the 401(k) and still have enough to live off of.
Topic Author
airbornecal
Posts: 19
Joined: Sat Mar 13, 2021 4:09 pm
Location: Texas

Re: Changed Jobs; sanity check my Plan please

Post by airbornecal »

gavinsiu wrote: Wed Mar 13, 2024 4:26 pm
Option 1: Do you normally max out your 401K contribution? If so, overcontributing early will may cause you to lose matching if your 401K does not have true up.

Option 2: I would likely pick option2.
Yes, I normally max out my 401k contribution by the end of the year. I'd overcontribute to calculate maxing out at the same time, to capture the employer match.
gavinsiu
Posts: 4640
Joined: Sun Nov 14, 2021 11:42 am

Re: Changed Jobs; sanity check my Plan please

Post by gavinsiu »

Had some additional thoughts
  • hsa
  • 529 if you have kids
  • if you have a mortgage with high interest rate
Topic Author
airbornecal
Posts: 19
Joined: Sat Mar 13, 2021 4:09 pm
Location: Texas

Re: Changed Jobs; sanity check my Plan please

Post by airbornecal »

Another question...I calculated that if I contribute the maximum % of my salary allowed by my plan starting with my eligible date of joining the 401k Plan I'll still come up short of the IRS limit by about $5k. Is there anything I can do to make this up?
terran
Posts: 3134
Joined: Sat Jan 10, 2015 9:50 pm

Re: Changed Jobs; sanity check my Plan please

Post by terran »

You could try talking to HR/payroll about whether it's possible to increase or override the maximum contribution rate (assuming your income will cover it in addition to FICA taxes and benefits withholding), but otherwise no.
Topic Author
airbornecal
Posts: 19
Joined: Sat Mar 13, 2021 4:09 pm
Location: Texas

Re: Changed Jobs; sanity check my Plan please

Post by airbornecal »

I suppose I could contribute after-tax (can contribute up to an additional 7%) to make up the difference if I want to hit the total $ amount, although of course it isn't tax deductible. Any flaw with that thought?
terran
Posts: 3134
Joined: Sat Jan 10, 2015 9:50 pm

Re: Changed Jobs; sanity check my Plan please

Post by terran »

Non-Roth After-tax contributions aren't usually a good deal (no tax deduction, gains taxed at ordinary income tax rates) compared to just investing in a regular taxable account (no tax deduction, most gains taxed at lower long term capital gains rates) unless you're allowed to convert to Roth while still working either within the plan or by rolling out to a Roth IRA. You want to know if the plan allows in-service withdrawals or in-service in-plan conversions of the after-tax contributions. If not the only other reason to make after-tax contributions are if you plan to change jobs soon at which point you can withdraw the after-tax contributions to be rolled over to a Roth IRA.
Topic Author
airbornecal
Posts: 19
Joined: Sat Mar 13, 2021 4:09 pm
Location: Texas

Re: Changed Jobs; sanity check my Plan please

Post by airbornecal »

terran wrote: Wed Apr 03, 2024 2:30 pm Non-Roth After-tax contributions aren't usually a good deal (no tax deduction, gains taxed at ordinary income tax rates) compared to just investing in a regular taxable account (no tax deduction, most gains taxed at lower long term capital gains rates) unless you're allowed to convert to Roth while still working either within the plan or by rolling out to a Roth IRA. You want to know if the plan allows in-service withdrawals or in-service in-plan conversions of the after-tax contributions. If not the only other reason to make after-tax contributions are if you plan to change jobs soon at which point you can withdraw the after-tax contributions to be rolled over to a Roth IRA.
Thank you for this; it's important.
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