401K Contributions in the year of FIRE

[JohnnyBGoode]

As I am 50+, I am currently funding my corporate 401K at $2,000 a month to take advantage of the increased contribution limit once you hit 50 ($24,000 annually)

I am currently planning on FIRE'ing in April of this year from my corp job (and thus will have contributed only $8,000 by that time at current rate).

My income level has been such that the 401K has been the only tax-deferred option available to me for many years. Even once I FIRE I will still be executing remaining stock options for several years and the income level from that will still put me over the regular or ROTH IRA limits.

My DW and I own a small business in town (with 5 employees) and currently offer a SIMPLE IRA for them (and my DW). We do match 3% of their contribution so we can contribute as well. SIMPLE IRA limits are $12,500 plus $3,000 catch up I believe.

I still want to be able to maximize my tax-deductable contributions this year (naturally).

So a couple of questions:
- the 401K limits seem the best ($24K vs $16.5K) - so do I have to try to get to that $24K before I FIRE in April? - possible but that is a heck of monthly deduction
- if I have part of the year under a 401K and part of the year under a SIMPLE IRA - what would be annual limit be?

Thanks!

 

[cathy63]

I did max out my 401K contributions in order to get to $24K before retiring at the end of last July. I wanted to go earlier, so actually set my contrib to the max my company would allow, but then got talked into staying. Given the behavior of the market during the latter part of the year, this turned out to be a good thing and I'm glad I did it.

I can't answer your question about combining the 401K and Simple IRA in the same year, but it seems unlikely that the combined limit would be higher than $24K. I'd guess that you're better off putting the max into the 401K and then rolling it over after you leave.

My income level has been such that the 401K has been the only tax-deferred option available to me for many years. Even once I FIRE I will still be executing remaining stock options for several years and the income level from that will still put me over the regular or ROTH IRA limits.

Unless you or your DW are going to have compensation from working (not sure if your stock options or the business you own will provide that), you won't be able to contribute to a regular or Roth IRA in the future at all. You can contribute $6500 to a tIRA this year, but it won't be deductible.

 

[Sunset]

When I was going to change jobs, knowing the new place has a 6 month delay prior to joining the 401K, I maxed mine out at work to fill it up. Yes it was a small paycheque, but I just tapped savings.

 

[mrfeh]

I still want to be able to maximize my tax-deductable contributions this year (naturally).

So a couple of questions:
- the 401K limits seem the best ($24K vs $16.5K) - so do I have to try to get to that $24K before I FIRE in April? - possible but that is a heck of monthly deduction
- if I have part of the year under a 401K and part of the year under a SIMPLE IRA - what would be annual limit be?

Thanks!

I was in the exact same position last year. I contributed the full $24K over the first 3 months of the year.

If you can afford it, that's what I would do.

 

[JohnnyBGoode]

Thanks everyone - that is what I pretty much expected (max out as much as possible early) but very good to know I wasn't missing anything.