Advice wanted: Fully contribute to 2018's 401K in 3 months ?

[lwp2017]

I want to fully contribute to my 401K and maximize company matching contributions prior to RE next year.

I plan to retire immediately after the first quarter in 2018 (91 days, six paychecks) .

To maximize 2018's 401K contribution and especially the company matching amount, I will change my deduction to $3084 a paycheck for six paychecks ($18,500).

Any flaws with this plan?

Thanks!

 

[Red Badger]

Nope. But if you're 55 or older, you can add another $6K if you can swing it.

Congrats on retirement!

 

[Big_Hitter]

agreed - kick in the extra $6K if you are over 50

 

[kaneohe]

Depending on how your plan works, you may/may not maximize your match by doing this. Some plans match by pay period so if you only contribute for 25% of pay periods, you may only get 25% of max match. Some match by $$$ amounts so it will work in that case. Contact HR to see how matching works for your company.

Of course if your main goal is to maximize contributions, then no choice.

 

[Big_Hitter]

Nope. But if you're 55 or older, you can add another $6K if you can swing it.

Congrats on retirement!

catch-up is if you are age 50 during the plan year

 

[atmsmshr]

Good idea to fully fund to the max a 401k early in a retirement year for tax purposes if your year end marginal tax rate is higher this year than next. If not, fund the Roth.

My megacorp parses out matching 401K amounts over the full 12 months of the year if I hit the limit early. That may be due to some obscure IRS rule. YMMV

Atom

 

[USGrant1962]

Depending on how your plan works, you may/may not maximize your match by doing this. Some plans match by pay period so if you only contribute for 25% of pay periods, you may only get 25% of max match. Some match by $$$ amounts so it will work in that case. Contact HR to see how matching works for your company.

Of course if your main goal is to maximize contributions, then no choice.

Also, plans may match up to X% of eligible pay. So this may not work depending on your pay for 1/4 year plus other payoffs (vacay, sick?). You'll need to check your plan documents (Summary Plan Description) but they might not even be clear.

 

[Lcountz]

What they all said plus:

Don't forget an IRA too.....though you can still contribute up to April 2019 if you retire in 2018, be nice to have the money growing all that time tax deferred too!

You need "earned income" to contribute to an IRA remember!

 

[lwp2017]

Thanks. Good reminder on the catch-up.
$24,500 is the maximum contribution not $18,500. $4084/check.

I plan to save and invest these last six checks, originally was retiring on Jan 2nd but was asked to extend the date.

Historically I set up paycheck deductions to max out contributions by the end of the first 9 months and wanted to double check so I didn't lose the 2018 opportunity.

 

[Al18]

My 401K limits contributions to a maximum 80% deduction.

 

[target2019]

Megacorp used to limit to 25%.
Current employer seems to allow up to 100%. Or at least the widget on the 401k allows that.
This is a good time to check with your employer.

 

[bada bing]

A lot depends on your individual numbers. A couple of "Corner" cases:

If your plan allows after-tax contributions, you can put in up to the all sources
max of $55K + $6K catch up and roll the after-tax money into a Roth IRA after
you leave your employer. If you already have after-tax money in the account
from previous years remember to get it rolled into a Roth IRA when you leave.

If your income for the shortened employment year is going to be low enough, it
might be advantageous to make the final years contributions as Roth rather than
deductible.

 

[HillCountry]

You might want to check out whether your co offer Roth 401k.

 

[pb4uski]

What OP did is what I did.... during the little time that I was on payroll in the year that I retired I earned more than the 401k contribution limit so I did have $2-3k of earnings for the year so I made a Roth contribution. I think it was unused vacation that put me over the limit.

 

[Senator]

See what it takes to get a match. Sometimes, you have to be employed there at year end.

I did 75% of my salary for the entire time I worked at the mega-corp. It stopped automatically as soon as the annual max was in.

 

[Scuba]

I did what you’re planning and it worked well for me. As others have said, depends on your employer’s policies, particularly matching.

 

[Splash]

That's a great plan! I retired February 1 after annual bonus was paid in January. I changed my paycheck deductions to ensure I contributed the max to 401k. I didn't get company match on catch up contributions since co plan required you to be employed on 12/31 to get that. Need to check plan summary as every plan is different.

I also changed my deductions to max out HSA contributions before departure. I had HSA eligible insurance from megacorp before retirement and ACA HSA eligible insurance post retirement.

Depending on your income level you may also qualify to make a deductible IRA or Roth IRA contribution in the year of retirement. I almost overlooked this one as we had never qualified before based on income.

 

[Hermit]

A lot depends on your individual numbers. A couple of "Corner" cases:

If your plan allows after-tax contributions, you can put in up to the all sources max of $55K + $6K catch up and roll the after-tax money into a Roth IRA after you leave your employer. If you already have after-tax money in the account from previous years remember to get it rolled into a Roth IRA when you leave.

If your income for the shortened employment year is going to be low enough, it might be advantageous to make the final years contributions as Roth rather than deductible.

I just rolled my 401k to an IRA. The after tax contributions were rolled into a Roth IRA. The after tax earnings had to be rolled into the traditional IRA.

 

[Ronstar]

Good plan, OP. Like others have said, try to get the catch up contribution as well if you are over 50. But make sure that you have enough left in your check to cover state and federal taxes, FICA, etc. Also make sure that your company 401k plan will allow your accelerated contribution plan.

I did something similar. I contributed either 80 or 85% during my last 3 months , but I was working 1-2 days a week so I didn't come close to maxing out the final year.

 

[lwp2017]

That's a great plan! I retired February 1 after annual bonus was paid in January. I changed my paycheck deductions to ensure I contributed the max to 401k. I didn't get company match on catch up contributions since co plan required you to be employed on 12/31 to get that. Need to check plan summary as every plan is different.



I also changed my deductions to max out HSA contributions before departure. I had HSA eligible insurance from megacorp before retirement and ACA HSA eligible insurance post retirement.



Depending on your income level you may also qualify to make a deductible IRA or Roth IRA contribution in the year of retirement. I almost overlooked this one as we had never qualified before based on income.

Good advice on HSA contributions. I forgot and will add it to the list.

The responses have been beneficial, my thanks to each of you.

 

[Sanstar]

I fully funded my 401 the first quarter of each year once the kids were on their own and we didn't need my checks to pay bills. Employer match was at the same time. I figured it gave me more opportunity to "grow" the fund over the course of the year. Sure did appreciate that first full check in April!

 

[JohnnyBGoode]

Yep - that is exactly what I did the beginning of this year. Maxed out the 401k over the first six months of the year before I FIRE’d. Go for it!