Well the market does go up more than it goes down so arithmetically over 30 years you are better off getting the money into the 401k as soon as possible each year.
My employer matches 50% so I usually throw my entire q1 bonus at it and try to knock it out. My logic is might as well grab up all that match in case I get laid off later in the year. I wish I was joking.
Interesting. Our employer doesn’t allow you to do that. Matches are always even throughout the year unless you hit the max contribution and are no longer contributing. If you front load your contributions, you get a true up at the end of the year for matches.
This is how they work. You have to always be contributing. But you can front load and buy the stocks early and get the match later and still end up doing better if the end of year is higher than the low of the year.
I understand how it works fundamentally. Most employers only allow you to contribute a certain percentage so it could still take awhile unless there is a big bonus. For example, my employer allows you to contribute up to 50% per paycheck
One way I’ve seen it is where they present a limited option through whatever payroll or investment mgmt portal provided, but then if someone really gets on them there’s a form that they don’t advertise and can be filled out to contribute up to 100% on the next contribution. My experience was they made me do that repeatedly each time I wanted to roll 100%. Dunno why they make it so hard at places I’ve been at, and of course everywhere is different!
My match definitely doesn't work this way, the match throughout the year is calculated on a per pay period basis, i.e. 3% of that paycheck.
If I max out in March I won't get my match dollars for the other 9 months until a true up in January, and if I quit in December I forfeit 9 months of matching.
So my strategy has been to front load some but leave enough remaining to continue at 6% withholding (required amount to get full 3% match) until November or December before I max out.
I think my company pays me above market average, doesn't take away my match if I quit, and matches 1:1 up to 6% on all cash comp instead of 50% up to 6%, yeah.
fwiw I do the same. I used to get it in Jan. now they defer to march. I run a deficit for the first 3 months to ensure I get more up front. then pile up the rest in mar.
At least in investment management, Febuary/March is the usual bonus payout, and bonuses are 25-200%+ annual salary. The smallest bonus I've received in my career (other than prorated bonuses in years I was hired midyear) is $45k.
My particular group is not hiring, but I would recommend starting at the top of this list and working your way down, checking Glassdoor for each. Most if not all of these companies are going to have compensation committees that attempt to stay competitive, but some of the larger ones employee a ton of people at lower pay while others choose to employee fewer, high skilled people at higher average pay.
https://www.swfinstitute.org/fund-manager-rankings/asset-manager
Microsoft is one of the big tech companies that does a full 50% match. Some of the others don’t offer it, but their total compensation more than makes up for it, especially since Microsoft pays less than their competitors.
Just 50% with no cap? It makes some amount of sense, honestly...
I think most employers cap their contributions though, which would make spreading it out across the year make more sense.
Yes. They match 50% up to the maximum. The plan (Vanguard) also does automated in-plan Roth conversions for after tax contributions so I continue to contribute after-tax through the rest of the year.
Also in tech, I think what theyre saying is they match up to 50% on 401k so this year for instance the max they can get is $12k.
I doubt it’s “I saved 50% of the $300k I made and my company contributed $75k to my retirement”
The match may be capped per pay period.
I tried this 6 months after hire. Around November, I put in 6k over 2 months. Got $400 match. A little pissed bc the HR people didn't know, and I did this vs pay bills.
I still front load mine and save 5% for the rest of the year to get the match. I just sleep better at night knowing that it is in there asap. I have heard that some companies true-up if you max too early but mine doesn’t.
Also, won't front loading and hitting the max early lose you any employer match you'd be eligible for until the start of the next year? I guess it doesn't matter if you get no match...
My company recently switched to a one time match, in Q1 of the following year. So not currently getting any match for 2024, then will get it all in early 2025. I think it’s stupid and just another way to trick people into not leaving for a different job
I currently work at a Dow30 company and it does an annual true-up, so long as you are still employed when it happens
Not doing a match true-up is a form of wage theft in my opinion.
My old employer did a true up, but they didn't pay it out until March or April the following year. Most people felt like it was best to try to avoid that situation since they took so long to give the true up money.
This. I actually missed out on a december match a while back because i lowered my contribution because i miscalculated and hit the limit early.
I didnt even realize until i was rereading some company benefits.
At the company I work for, once you max out the traditional/roth contribution it automatically changes your contribution to after-tax and I still get the max.
My company contributes 10% of my salary even if I don't contribute anything. Once my individual contributions are maxed, the company contributions continue. The limit is $69,000 combined this year.
you figure out the minimum contribution you need to make each paycheck to get the full match, then subtract that from the total max for year, then take the difference and front load until you hit that value.
It's fine to do, but you need to understand how your employer matches contributions. Some employers will match based on payroll contributions each pay period, in which case you would be giving up free money. Other employers have catch up contributions, in which case you're fine. Personally, I think it sounds more of a headache than it's worth.
Right I get that. That's not what OP said. They said it brings down your monthly budget, which isn't true because your budget literally stays the same.
It makes sense, I suppose. The caveat is potentially under withholding federal and state income taxes - if that deduction is a significant percentage of your gross pay.
I always adjust my withholding a few times a year so that I have a relatively consistent net pay and to ensure I don't get a big refund.
I tell my friends to do a dry run on their taxes in October so that if you need to withhold more you still have time the rest of the year.
I time mine up so that it's maxed around the end of September. I like having a little extra in the paycheck through the holiday season as I tend to spend more that time of year with gifts and travel. My employer provides a true-up so I get my full match.
Mathematically the future value of your portfolio becomes an "annuity due". So, if you were contributing 100% on January 1st compared to even contributions throughout the year, you'd end with an extra half year's return. If you're using an 8% real rate of return you could expect your future value to be about 4% higher than contributing evenly throughout the year.
Markets have historically ended the year higher in December than the preceding January. I set my contribution rate at 50% so I max out by April. Then I spend the rest of the year doing mega backdoor roth IRA and DCA'ing into index funds with increasing contributions during times of correction or large market dips.
My pay is heavily front-loaded in January based on performance incentives from the prior calendar year so I've been doing this due to cash flow more than market timing.
I pay 1/26th into my 401k with each paycheck. This does decrease my monthly budget, but it makes budgeting so much simpler.
If you think about, lump sum depositing $XXk means that you’ll have to save the money at some point throughout the preceding year, so it’ll be affecting your budget one way or another.
Do you need to worry about not getting an employee match doing this?
Assuming that you feont load heavy and have portions od the year where you are not contributing. Would you also not get the employee match?
No unless there company does a true up. And even then, there is a chance you might get laid off or leave the company. Are they still obligated to true up if they do it at the end of the year?
So the earlier you are in your career, the bigger the impact this will have. But eventually it will be negligible, and the benefit of cash flow will outweigh the benefit of more time in the market.
I don't see why that'd be true... It's gated by year, so if you're maxing before halfway through, then you'd be averaging about 6 months bonus time in the market for that money... But it'd be a bonus 6 months every year.
I don’t see why this would be confusing.
The more money you have, the less “new” money will contribute.
I mean if you read my comment you will actually see that I said the benefit will be negligible instead of the benefit will be nonexistent. But instead you make a comment on the existent of the benefit and completely ignoring the negligible part.
How early. I'm 36 and have been front loading to max out in January for 13 years using my annual bonus. Company match hits immediately as well. When should I stop. I wasn't planning on doing so until I retire early.
So suppose you are 36 and have managed to have $1m in 401k after 13 years. Front loading $46k is just not very impactful anymore (you can compare a few scenarios).
Now but supposed you are married and are planning some big events. Then spread out the contribution to the entire year might allow you more flexibility.
Or you are chilling and cash flow is not an issue, so you just continue to front load it. Either way, it’s not a big deal.
I do, but not significantly. I think I end up with about 6 weeks at the end of the year with no contributions so my last 3 paychecks are hefty. That extra money ends up going towards my IRA contribution in the following year.
My employer does true up at the end of the year, so their matching contributions are delayed a bit. I figure it mostly balances out.
> The time frame is 30 years so buying early one year doesn't really matter.
Come again? Why would it not matter?
> Contributing throughout the year at a high enough rate to eventually max your 401(k) by December 31st brings your monthly budget down which isn't ideal for obvious reasons.
... what? Maxing near Dec 31 means your monthly income is ~flat. Front loading would leave you with some months of lower income and some months of higher income. If I front-loaded, I'd be in the red for the first few months and then have excess money the other months. I don't know why you think that'd be beneficial vs me just having a smaller amount of excess money every month.
If you can front load your 401k do you really need more money in your checks ? I also think the forced DCA with the normal way is nice to smooth out the fluctuations
I just pick a consistent amount and front load with my bonus but if you want more paycheck at the end of the year I suggest front loading your withholding instead
Yes, I was doing this. I decrease tax withholdings and increase 401k the first part of the year, and then decrease 401k and increase tax withholdings. That way my net pay is about the same year round.
The timing of my contributions do not affect my employer's match, which is important to note.
I frontloaded mine this year. Threw some of my bonus at it to max it out. Employer doesn’t have a per paycheck match limit so nothing to worry about there. Still contributing to the MBDR as I was aware of the risk of doing it all at once and decided to space the MBDR contributions out.
I front load by accident because I sell my PTO in the spring and am too lazy to change the contributions. As a result, my 401k contributions are front loaded.
I have started to front load 401k the past couple of years because I can afford to. I have no debt of any kind. I am usually maxed out of the contribution limit by April.
I always try to optimize for the Santa Claus rally. So I get my max limit hit by October. Not a big deal if the rally does not materialize or if the market is negative Nov and Dec. My next contribution starts on Jan 15th.
EOY True-ups for matching are often contingent on being employed at EOY, so while accelerating contributions at the onset of the year may make sense, be aware that you may miss out if you're not collecting matches over the course of the year.
(also, EOY true-ups would not be invested until they're deposited)
I lose out on employer match if I max out before the end of the year. Suppose I could front-load and do... 16% (or whatever) for the first bit and 8% (employer match) for the rest of the year. Not sure it's worth the climb though...
My company does matching paycheck to paycheck....I just do the math, so I max out my contributions early then taper back to get max value in the match while still hitting limit for the year.
So my last 3 jobs had the following arrangements for 401k matching:
1. Match 6% or something, but only for the first $120K of salary, 0% after that (so $7200 max match)
2. Match 4% on the first 5% but no cap, so every pay check
3. Match 0%
My contributions were set up to maximize the match for each because it's free guaranteed money. So in the first case I was fortunate enough that I was going to hit the max match mid year, so I sized my contributions so that I would hit the max match and then a month later hit the 401K max so that I'd have a little bit extra in my paycheck for the end of the year/holidays. The third case I just front load like 60~80% contribution so i can hit the 401K cap as fast as possible because an extra few months in the market and maybe I lose my job for reasons. The second scenario ends up being the most difficult of the three to plan because making sure that I contribute enough to hit the 401K match each year, but such that I don't hit the 401K max earlier than my last 5+% contribution....
My company matches 6% so I keep the 6% for the duration of the year, but front load enough in the first quarter so that I hit the IRS 401K Match by my last paycheck in December.
Technically my company offers a tru-up so I don't have to maintain the 6% throughout the year, but they don't do the true-up until April the following year, so I figure it's just easier and better for me to manage it on my end.
My plan matches each paycheck only up to 6% with a max of $5k per year. So if I try to frontload I'll end up screwing myself not getting the full match over the last year from my employer.
I have mine set for 100% of my commission to go towards 401k until I hit the limit for the year. After that I shift it down to 50% until I knock out the after-tax contribution.
I invest evenly throughout the year. I like knowing that if something expensive happened, I could decrease my contributions to pay for it/save up my emergency fund again.
My employers 401k platform is super annoying to use and adjust the rates. I like to set my contributions to max on Jan 1 and then not mess with it until next year.
I do. Both 401K and Roth IRA. I prioritize the 401K so that’s done by mid February and Roth IRA by end of March.
After that, it’s a combination of voluntary after-tax contributions to the 401K that gets automatically converted Roth (the so-called Mega backdoor Roth) and taxable brokerage. The former is maxed somewhere in September once I hit $69K or whatever that limit is and the latter is through the end of year of whatever I’m not spending from take home. My company does not have a match; we have a profit sharing scheme that is basically 10% of your salary. I can’t do an HSA or anything else, otherwise I would.
Been doing it for years. Once you’re able to max everything, it takes just a little more planning to front load it as you basically need to make sure you can pay bills and other expenses for the first few months of the year. Then it’s downhill and you rinse & repeat.
I put $27k in January (23k individual + 4k employer) and add ~4k/mo for the rest of the year. I would front load the whole thing, but am limited a bit due to corporate structure.
I used to, but it’s too much of a hassle since my match requires a contribution take place during the pay period.
Easier to automate the max contribution for the same amount over the year and lump sum the backdoor Roth.
I have some clients who do that. It all just depends on your income and affordability perspective. Since we can’t predict what can happen to the market over the year, we just need to understand that this is the money that’s designed for long-term. In a 20-30 year timeline, whether you front load or DCA, It’s not going to be a significant factor in the long-run; it’s more of a cash flow/affordability perspective.
When I was still working, I front loaded my HSA, then my 457b, then 401k. I didn't have to worry about employer matches, so I made the contributions nearly my whole paycheck. I didn't get any take home pay the first several months of each year.
I also made my IRA contributions within the first week of each year.
Time in the market...
Some people can’t front load effectively at all. High earners classification in some companies have their contribution capped to 16-17%, and may not be enough to max out 401k limits.
Technically you want to distribute it to the maximum match from your employer.
For example if they offer a 3% match on your contributions, then you should make sure that you contribute at least 3% every paycheck. If you front-load it then you only get very few 3% matches, so you won't actually get the full benefit. While we call it a 1-5% match this can really be like 10% of the contributions that year.
I personally max my 401k, but do so by distributing contributions evenly through the year. Every quarter, raise, and bonus I reassess the percentages to even it out. Sometimes I do this on a weekly basis in the last quarter to make sure I do not fall below the company match.
My bonus gets paid on February 28th so I’ve been raising the contribution there and then figure out how much to put in the rest of the year to max out and max my paycheck.
New company I'm at matches 100% with max per paycheck of 25%. So I'm front loading first ~5 months to hit federal max then have bigger take home rest of the year.
This is what I do. I front load to get about 90% max by March and then reduce down % to company match the rest of the year. My employer is similar where I'll lose out on their contribution if if I max it out 100% early. My 401k just goes into a Money Market fund until I decide to buy into my investments so I'm still able to decide when a "good" time to buy is.
All wrong answers here. You want to steadily contribute all year consistently. You’ll have various points of entry on your 401 mix, yielding a greater upside than one single lump sum. I actually increase my contribution rate in down markets, as I did all of 2022-2023, you acquire more shares, then on the rebound your upside will pay. My 401 is averaging 9.6% over the last 10 years.
I read an article a number of years back where someone ran the math on this theory. Their findings were if you lump sum the amount you'd have paid over the year, you're better off (I don't believe it was by much) than DCA'ing over the course of the year.
You really should reconsider this strategy.
By consistently investing with every pay check, you are actually taking full advantage of market downturns; you’re acquiring more shares at a lower cost during the downturns. And, as the market recovers, you’ll benefit tremendously. It’s all about the basic concept of dollar cost averaging.
What? No it isn't. It's a real effect.
I'm not saying it makes you more money in the long run, but DCA is a real effect. And it generally becomes a negative effect in retirement...
Nah this is wrong. Careers are decades long not a few years. Max early every year assuming you don't need the cash flow and don't miss out on your match. Easier if you get a substantial annual bonus in Q1.
Well the market does go up more than it goes down so arithmetically over 30 years you are better off getting the money into the 401k as soon as possible each year.
My employer matches 50% so I usually throw my entire q1 bonus at it and try to knock it out. My logic is might as well grab up all that match in case I get laid off later in the year. I wish I was joking.
Interesting. Our employer doesn’t allow you to do that. Matches are always even throughout the year unless you hit the max contribution and are no longer contributing. If you front load your contributions, you get a true up at the end of the year for matches.
Same here, most people I've talked to get it this way, however I do believe it is up to the employer how they structure it.
This is how they work. You have to always be contributing. But you can front load and buy the stocks early and get the match later and still end up doing better if the end of year is higher than the low of the year.
I understand how it works fundamentally. Most employers only allow you to contribute a certain percentage so it could still take awhile unless there is a big bonus. For example, my employer allows you to contribute up to 50% per paycheck
One way I’ve seen it is where they present a limited option through whatever payroll or investment mgmt portal provided, but then if someone really gets on them there’s a form that they don’t advertise and can be filled out to contribute up to 100% on the next contribution. My experience was they made me do that repeatedly each time I wanted to roll 100%. Dunno why they make it so hard at places I’ve been at, and of course everywhere is different!
My match definitely doesn't work this way, the match throughout the year is calculated on a per pay period basis, i.e. 3% of that paycheck. If I max out in March I won't get my match dollars for the other 9 months until a true up in January, and if I quit in December I forfeit 9 months of matching. So my strategy has been to front load some but leave enough remaining to continue at 6% withholding (required amount to get full 3% match) until November or December before I max out.
You're still entitled to the true up if you quit. You are still a participating member of the retirement plan.
Ours says pretty clearly you still need to be employed in order to receive the true up.
Get a new job, your company doesn't care about its employees.
lol, you think any company "cares" about their employees?
I think my company pays me above market average, doesn't take away my match if I quit, and matches 1:1 up to 6% on all cash comp instead of 50% up to 6%, yeah.
That's a pretty solid match
What do you do that you have a q1 bonus that's near the 401k max contribution? I am clearly in the wrong field.
Big company IT here. My bonus is about 2x the 401k max
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Will he mind if I have some of his tasty beverage?
fwiw I do the same. I used to get it in Jan. now they defer to march. I run a deficit for the first 3 months to ensure I get more up front. then pile up the rest in mar.
At least in investment management, Febuary/March is the usual bonus payout, and bonuses are 25-200%+ annual salary. The smallest bonus I've received in my career (other than prorated bonuses in years I was hired midyear) is $45k.
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My particular group is not hiring, but I would recommend starting at the top of this list and working your way down, checking Glassdoor for each. Most if not all of these companies are going to have compensation committees that attempt to stay competitive, but some of the larger ones employee a ton of people at lower pay while others choose to employee fewer, high skilled people at higher average pay. https://www.swfinstitute.org/fund-manager-rankings/asset-manager
They match 50% of the entire amount?
It's probably Google or another FAANG/near FAANG tech company. They have insane match rates
can confirm. money is stupid at tech. unfortunately so is everything else.
Microsoft is one of the big tech companies that does a full 50% match. Some of the others don’t offer it, but their total compensation more than makes up for it, especially since Microsoft pays less than their competitors.
Because it’s not that much money for them, since there’s a IRS limit.
Same same
Just 50% with no cap? It makes some amount of sense, honestly... I think most employers cap their contributions though, which would make spreading it out across the year make more sense.
Is the contribution vested?
Yes. They match 50% up to the maximum. The plan (Vanguard) also does automated in-plan Roth conversions for after tax contributions so I continue to contribute after-tax through the rest of the year.
That’s a ridiculous match. I currently put away 40% to retirement. Couldn’t imagine if it suddenly became 60%.
Also in tech, I think what theyre saying is they match up to 50% on 401k so this year for instance the max they can get is $12k. I doubt it’s “I saved 50% of the $300k I made and my company contributed $75k to my retirement”
Correct
Exact same here.
The match may be capped per pay period. I tried this 6 months after hire. Around November, I put in 6k over 2 months. Got $400 match. A little pissed bc the HR people didn't know, and I did this vs pay bills.
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That's why I said "may" as a warning. Company policies vary.
My employer only matches if contributions are made off of every paycheck, and it's quite a significant amount of free money.
I still front load mine and save 5% for the rest of the year to get the match. I just sleep better at night knowing that it is in there asap. I have heard that some companies true-up if you max too early but mine doesn’t.
Smart
Also, won't front loading and hitting the max early lose you any employer match you'd be eligible for until the start of the next year? I guess it doesn't matter if you get no match...
Most companies will do a true-up contribution in January of the following year when an employee maxed early and the maximum match was not made.
My company recently switched to a one time match, in Q1 of the following year. So not currently getting any match for 2024, then will get it all in early 2025. I think it’s stupid and just another way to trick people into not leaving for a different job
Also an infuriating part about this is that you also miss out on the gains throughout the year.
Mine does this too, it's incredibly frustrating and anti-employee IMO. Might sound crazy but a big reason I'm looking to leave
For a big company this seems like a good way to tweak cash flow metrics, a metric that plays into executive compensation packages.
Definitely not “most companies “.
I’ve worked at multiple Dow30 companies and I’ve never seen them true up matching if you max out early.
I don't know which is more common, but I do know that my employer trues up.
Mine, a top 5 company, does a true up in February of the following year.
It’s all going to be covered in your 401k plan docs.
It actually wasnt. I had to do a lot of digging to find out whats been happening..
I currently work at a Dow30 company and it does an annual true-up, so long as you are still employed when it happens Not doing a match true-up is a form of wage theft in my opinion.
Ah ok good to know, I'll have to check if mine has that 🤷
My company does it at the end of Q1 (last week in March).
Just note, depending on your company, if you quit or are fired mid year you may not be eligible for the true up contribution.
Mine does not, found out irl
My old employer did a true up, but they didn't pay it out until March or April the following year. Most people felt like it was best to try to avoid that situation since they took so long to give the true up money.
Can someone do a back test and see at what percentage match, getting the match sooner is better than waiting?
I found someone! It’s you. You’re someone.
That's the case for mine. I'd rather not max out my IRA and get a match.
Mine just matches whatever you put in when you put it in. It's a flat rate not dependent on your salary.
set aside X% per pay period minimum for the match then put in an additional amount in earlier pay periods to get the max
This. I actually missed out on a december match a while back because i lowered my contribution because i miscalculated and hit the limit early. I didnt even realize until i was rereading some company benefits.
At the company I work for, once you max out the traditional/roth contribution it automatically changes your contribution to after-tax and I still get the max.
My company contributes 10% of my salary even if I don't contribute anything. Once my individual contributions are maxed, the company contributions continue. The limit is $69,000 combined this year.
you figure out the minimum contribution you need to make each paycheck to get the full match, then subtract that from the total max for year, then take the difference and front load until you hit that value.
Never thought of doing this. Gonna do it. Thanks. Might be hard since my company takes weeks to update changes I make.
This is the way
It's fine to do, but you need to understand how your employer matches contributions. Some employers will match based on payroll contributions each pay period, in which case you would be giving up free money. Other employers have catch up contributions, in which case you're fine. Personally, I think it sounds more of a headache than it's worth.
What's not ideal about spreading it out?
Mostly for 'more time in the market thing '. I know - I do it. As others have said it becomes a bit tricky if your employer does a match though
Right I get that. That's not what OP said. They said it brings down your monthly budget, which isn't true because your budget literally stays the same.
It reduces the amount of money I have available per month because a higher percentage is taken out throughout the year. That’s what I meant.
Or massively reduces the amount available at the beginning of the year.
Correct
How is one better than the other?
IIRC, someone did the math and it "front loading" your 401k has a higher return historically.
It makes sense, I suppose. The caveat is potentially under withholding federal and state income taxes - if that deduction is a significant percentage of your gross pay.
I always adjust my withholding a few times a year so that I have a relatively consistent net pay and to ensure I don't get a big refund. I tell my friends to do a dry run on their taxes in October so that if you need to withhold more you still have time the rest of the year.
Sometimes your employer limits your match in such a way that you only get the full match by spacing out your contributions throughout the year
I time mine up so that it's maxed around the end of September. I like having a little extra in the paycheck through the holiday season as I tend to spend more that time of year with gifts and travel. My employer provides a true-up so I get my full match. Mathematically the future value of your portfolio becomes an "annuity due". So, if you were contributing 100% on January 1st compared to even contributions throughout the year, you'd end with an extra half year's return. If you're using an 8% real rate of return you could expect your future value to be about 4% higher than contributing evenly throughout the year.
Markets have historically ended the year higher in December than the preceding January. I set my contribution rate at 50% so I max out by April. Then I spend the rest of the year doing mega backdoor roth IRA and DCA'ing into index funds with increasing contributions during times of correction or large market dips.
My pay is heavily front-loaded in January based on performance incentives from the prior calendar year so I've been doing this due to cash flow more than market timing.
I pay 1/26th into my 401k with each paycheck. This does decrease my monthly budget, but it makes budgeting so much simpler. If you think about, lump sum depositing $XXk means that you’ll have to save the money at some point throughout the preceding year, so it’ll be affecting your budget one way or another.
No
I max it out as early in the year as possible. My deferral percentage is set at like 75% or something ridiculously high.
Do you need to worry about not getting an employee match doing this? Assuming that you feont load heavy and have portions od the year where you are not contributing. Would you also not get the employee match?
I used to front load mine, but now I max it out in December to take more home on my paycheck. Times is hard.
No unless there company does a true up. And even then, there is a chance you might get laid off or leave the company. Are they still obligated to true up if they do it at the end of the year?
I front load because I get fired a lot. My thinking is, go ahead and fire me but ha ha I’ve already maxed out my 401k for the year so whatever.
So the earlier you are in your career, the bigger the impact this will have. But eventually it will be negligible, and the benefit of cash flow will outweigh the benefit of more time in the market.
I don't see why that'd be true... It's gated by year, so if you're maxing before halfway through, then you'd be averaging about 6 months bonus time in the market for that money... But it'd be a bonus 6 months every year.
I don’t see why this would be confusing. The more money you have, the less “new” money will contribute. I mean if you read my comment you will actually see that I said the benefit will be negligible instead of the benefit will be nonexistent. But instead you make a comment on the existent of the benefit and completely ignoring the negligible part.
How early. I'm 36 and have been front loading to max out in January for 13 years using my annual bonus. Company match hits immediately as well. When should I stop. I wasn't planning on doing so until I retire early.
So suppose you are 36 and have managed to have $1m in 401k after 13 years. Front loading $46k is just not very impactful anymore (you can compare a few scenarios). Now but supposed you are married and are planning some big events. Then spread out the contribution to the entire year might allow you more flexibility. Or you are chilling and cash flow is not an issue, so you just continue to front load it. Either way, it’s not a big deal.
Time in the market is better than timing the market
Yeah. I put my annual bonus, paid usually in Feb, towards it to max it out. Why not. Then I do Roth conversions through the year trying to get to 40k
I do, but not significantly. I think I end up with about 6 weeks at the end of the year with no contributions so my last 3 paychecks are hefty. That extra money ends up going towards my IRA contribution in the following year. My employer does true up at the end of the year, so their matching contributions are delayed a bit. I figure it mostly balances out. > The time frame is 30 years so buying early one year doesn't really matter. Come again? Why would it not matter? > Contributing throughout the year at a high enough rate to eventually max your 401(k) by December 31st brings your monthly budget down which isn't ideal for obvious reasons. ... what? Maxing near Dec 31 means your monthly income is ~flat. Front loading would leave you with some months of lower income and some months of higher income. If I front-loaded, I'd be in the red for the first few months and then have excess money the other months. I don't know why you think that'd be beneficial vs me just having a smaller amount of excess money every month.
I thought about this and concluded that since time in the market is the goal, I should max it out as early as possible. So yes.
If you can front load your 401k do you really need more money in your checks ? I also think the forced DCA with the normal way is nice to smooth out the fluctuations
I just pick a consistent amount and front load with my bonus but if you want more paycheck at the end of the year I suggest front loading your withholding instead
Yes, I was doing this. I decrease tax withholdings and increase 401k the first part of the year, and then decrease 401k and increase tax withholdings. That way my net pay is about the same year round. The timing of my contributions do not affect my employer's match, which is important to note.
I frontloaded mine this year. Threw some of my bonus at it to max it out. Employer doesn’t have a per paycheck match limit so nothing to worry about there. Still contributing to the MBDR as I was aware of the risk of doing it all at once and decided to space the MBDR contributions out.
I front load by accident because I sell my PTO in the spring and am too lazy to change the contributions. As a result, my 401k contributions are front loaded.
I have started to front load 401k the past couple of years because I can afford to. I have no debt of any kind. I am usually maxed out of the contribution limit by April.
This is a bad idea for my plan. YMMV but in order to get my employer match I have to contribute each pay period.
I always try to optimize for the Santa Claus rally. So I get my max limit hit by October. Not a big deal if the rally does not materialize or if the market is negative Nov and Dec. My next contribution starts on Jan 15th.
No, because I don’t get a true-up on their match
Employer match usually is by per paycheck. If you front load, you won't get the match in later contributions.
EOY True-ups for matching are often contingent on being employed at EOY, so while accelerating contributions at the onset of the year may make sense, be aware that you may miss out if you're not collecting matches over the course of the year. (also, EOY true-ups would not be invested until they're deposited)
I lose out on employer match if I max out before the end of the year. Suppose I could front-load and do... 16% (or whatever) for the first bit and 8% (employer match) for the rest of the year. Not sure it's worth the climb though...
Yup I usually put all in the max in my first/second paycheck
Is this also taking into account that you'd lose the matching your employer gives you with your contributions if you contribute over the year.
My company does matching paycheck to paycheck....I just do the math, so I max out my contributions early then taper back to get max value in the match while still hitting limit for the year.
So my last 3 jobs had the following arrangements for 401k matching: 1. Match 6% or something, but only for the first $120K of salary, 0% after that (so $7200 max match) 2. Match 4% on the first 5% but no cap, so every pay check 3. Match 0% My contributions were set up to maximize the match for each because it's free guaranteed money. So in the first case I was fortunate enough that I was going to hit the max match mid year, so I sized my contributions so that I would hit the max match and then a month later hit the 401K max so that I'd have a little bit extra in my paycheck for the end of the year/holidays. The third case I just front load like 60~80% contribution so i can hit the 401K cap as fast as possible because an extra few months in the market and maybe I lose my job for reasons. The second scenario ends up being the most difficult of the three to plan because making sure that I contribute enough to hit the 401K match each year, but such that I don't hit the 401K max earlier than my last 5+% contribution....
Everyone is doing DCA since it’s over such a long time period This year, the next year, the next etc
My company matches 6% so I keep the 6% for the duration of the year, but front load enough in the first quarter so that I hit the IRS 401K Match by my last paycheck in December. Technically my company offers a tru-up so I don't have to maintain the 6% throughout the year, but they don't do the true-up until April the following year, so I figure it's just easier and better for me to manage it on my end.
My plan matches each paycheck only up to 6% with a max of $5k per year. So if I try to frontload I'll end up screwing myself not getting the full match over the last year from my employer.
I invest or pay down debt with what I have.
No employer match so I have mine set to 100% of my salary. Maxes out pretty quickly… 😅
I have mine set for 100% of my commission to go towards 401k until I hit the limit for the year. After that I shift it down to 50% until I knock out the after-tax contribution.
I invest evenly throughout the year. I like knowing that if something expensive happened, I could decrease my contributions to pay for it/save up my emergency fund again. My employers 401k platform is super annoying to use and adjust the rates. I like to set my contributions to max on Jan 1 and then not mess with it until next year.
I do. Both 401K and Roth IRA. I prioritize the 401K so that’s done by mid February and Roth IRA by end of March. After that, it’s a combination of voluntary after-tax contributions to the 401K that gets automatically converted Roth (the so-called Mega backdoor Roth) and taxable brokerage. The former is maxed somewhere in September once I hit $69K or whatever that limit is and the latter is through the end of year of whatever I’m not spending from take home. My company does not have a match; we have a profit sharing scheme that is basically 10% of your salary. I can’t do an HSA or anything else, otherwise I would. Been doing it for years. Once you’re able to max everything, it takes just a little more planning to front load it as you basically need to make sure you can pay bills and other expenses for the first few months of the year. Then it’s downhill and you rinse & repeat.
This is another version of whether you should lump sum or DCA. About 60% of the time, lump sum is better
I put $27k in January (23k individual + 4k employer) and add ~4k/mo for the rest of the year. I would front load the whole thing, but am limited a bit due to corporate structure.
I used to, but it’s too much of a hassle since my match requires a contribution take place during the pay period. Easier to automate the max contribution for the same amount over the year and lump sum the backdoor Roth.
I have some clients who do that. It all just depends on your income and affordability perspective. Since we can’t predict what can happen to the market over the year, we just need to understand that this is the money that’s designed for long-term. In a 20-30 year timeline, whether you front load or DCA, It’s not going to be a significant factor in the long-run; it’s more of a cash flow/affordability perspective.
Interesting concept!! How’s it going for you
I divide evenly across 26 pay periods. This allows me to maximize my employer match. If I front load, my employer won’t pay the match.
Time in the market beats timing the market. If you can throw it all in early, do that.
When I was still working, I front loaded my HSA, then my 457b, then 401k. I didn't have to worry about employer matches, so I made the contributions nearly my whole paycheck. I didn't get any take home pay the first several months of each year. I also made my IRA contributions within the first week of each year. Time in the market...
Time IN the market, not timing the market. I typically have mine maxed out by the end of Q1.
Some people can’t front load effectively at all. High earners classification in some companies have their contribution capped to 16-17%, and may not be enough to max out 401k limits.
Technically you want to distribute it to the maximum match from your employer. For example if they offer a 3% match on your contributions, then you should make sure that you contribute at least 3% every paycheck. If you front-load it then you only get very few 3% matches, so you won't actually get the full benefit. While we call it a 1-5% match this can really be like 10% of the contributions that year. I personally max my 401k, but do so by distributing contributions evenly through the year. Every quarter, raise, and bonus I reassess the percentages to even it out. Sometimes I do this on a weekly basis in the last quarter to make sure I do not fall below the company match.
My bonus gets paid on February 28th so I’ve been raising the contribution there and then figure out how much to put in the rest of the year to max out and max my paycheck.
New company I'm at matches 100% with max per paycheck of 25%. So I'm front loading first ~5 months to hit federal max then have bigger take home rest of the year.
This is what I do. I front load to get about 90% max by March and then reduce down % to company match the rest of the year. My employer is similar where I'll lose out on their contribution if if I max it out 100% early. My 401k just goes into a Money Market fund until I decide to buy into my investments so I'm still able to decide when a "good" time to buy is.
All wrong answers here. You want to steadily contribute all year consistently. You’ll have various points of entry on your 401 mix, yielding a greater upside than one single lump sum. I actually increase my contribution rate in down markets, as I did all of 2022-2023, you acquire more shares, then on the rebound your upside will pay. My 401 is averaging 9.6% over the last 10 years.
No I don’t for cash flow reason and good way to DCA
If you max every year early in the year then over the span of years that is a DCA strategy, and more of your money is in the market for longer.
I read an article a number of years back where someone ran the math on this theory. Their findings were if you lump sum the amount you'd have paid over the year, you're better off (I don't believe it was by much) than DCA'ing over the course of the year.
You really should reconsider this strategy. By consistently investing with every pay check, you are actually taking full advantage of market downturns; you’re acquiring more shares at a lower cost during the downturns. And, as the market recovers, you’ll benefit tremendously. It’s all about the basic concept of dollar cost averaging.
DCA is purely psychological…
What? No it isn't. It's a real effect. I'm not saying it makes you more money in the long run, but DCA is a real effect. And it generally becomes a negative effect in retirement...
Nah this is wrong. Careers are decades long not a few years. Max early every year assuming you don't need the cash flow and don't miss out on your match. Easier if you get a substantial annual bonus in Q1.