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Max 401k before I go or not
Old 02-13-2020, 01:58 PM   #1
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Max 401k before I go or not

So my date to get out of the rat race is June 4, 2020. I have a bonus coming in early March. My question is, should I change the contribution to my 401k to defer as much as possible and Max it for the year ($26000k)?

My current assets are in a ratio of taxable to tax deferred of 30% taxable to 70% tax deferred (401k and traditional IRA.

My thoughts are that by doing this, i would maximize the tax deferred before I go out mid year.
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Old 02-13-2020, 02:01 PM   #2
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It depends. I'd suggest that you sketch out your 2020 taxes with no deferral and with deferral to get an idea of the potential tax savings.
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Old 02-13-2020, 02:19 PM   #3
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Yes, definitely.
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Old 02-13-2020, 02:24 PM   #4
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For sure get the max company match on any contributions you make, whether pre or post tax. Depends on your company policies how much and what type that they match.
Do you need after tax money to bridge for a while? That may lean to what type contributions you make. Generally if your income for half the year is still high enough you may still benefit from pre tax. But as suggested look at your tax overall picture for this year.
Congratulations on having a date to get out.
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Old 02-13-2020, 02:46 PM   #5
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Quote:
Originally Posted by pb4uski View Post
It depends. I'd suggest that you sketch out your 2020 taxes with no deferral and with deferral to get an idea of the potential tax savings.
Exactly,
OP - with 1/2 a year income your taxes may be low anyhow.
Definitely consider ROTH contributions.
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Old 02-13-2020, 03:20 PM   #6
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It's mainly a tax comparison question of your marginal rate this year vs. when you'd have to take RMDs. There's no sense in deferring income beyond any company match if your tax rate is lower now. A Roth contribution might serve you better.

The other question is cash flow. If you don't have enough funds in your taxable to make it to when you cash withdraw from 401K without penalty, don't defer past the match.
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Old 02-13-2020, 03:46 PM   #7
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In this, my final year or w$rk, I'm planning to hit the 401(k) with $26K, the spousal IRA with $6K, and the ROTH IRA with $6K. That way, taxable salary, dividends, 1099-MISC., and inherited IRA RMD will about equal the standard deduction for 2 (MFJ), while allowing me to take about $65K in LTCGs, tax-free!

Of course, your age, income, income needs, tax calculations, etc. all factor into the decision.
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Old 02-13-2020, 03:46 PM   #8
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Yes! ...this is exactly what I plan to do when my turn comes! I will work through March of the target year to max out 401k and HSA (has a match as well); this will require a change to my FIDO 401k deferral rate prior to the first payroll. Good luck!
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Old 02-13-2020, 04:31 PM   #9
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Yes, I just did it. Completely maxed it out, got the company match and like that I was able to reduce 2020 taxes plus watch it grow tax deferred for next 16 years. Its all be rolled over to my IRA now but glad I did it.
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Old 02-13-2020, 06:30 PM   #10
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Okay - looks like my thoughts were on point. Now to do a little math and figure out the best approach.
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Old 02-13-2020, 06:34 PM   #11
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I plan to work until the spring of whatever year I retire just to be able to hit the 401k plan hard one last time with contributions as well as maxing my Roth for that final year.
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Old 02-13-2020, 08:10 PM   #12
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NO!

IRA's and 401(k)'s are great ways to amass wealth over a number of years by avoiding taxes. But you will be retiring within a few months! You have a greater likelihood of benefiting from unencumbered access to funds for unplanned expenses. By placing it in an IRA you will need to pay taxes on every withdrawal. Not necessarily immediately, but all money withdrawn is taxable

Unless you have a lot of money invested in taxable accounts currently, I recommend keeping this final bonus outside of a tax deferred account, and invest it in a taxable account for tax free access to the funds whenever you need them.
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Old 02-14-2020, 07:58 AM   #13
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One would hope that you already have a plan for income in retirement that includes taxes. What would be the difference between maxing out the 401K and taking the money? (I assume it is not a Roth 401K).

Another thought I have is: Have you announced your departure yet? A sudden big change in 401K contributions may trigger some suspicions. That may affect the bonus. I would certainly wait until after the bonus. I know such things are supposed to be kept private, but sometimes...…. Are you willing to make that bet?
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Old 02-14-2020, 08:18 AM   #14
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Like CRLLS mentioned, I'm assuming you don't have access to a Roth 401(k)?

Also, does your company allow for non-deductible 401(k) contributions up to the $63,500 limit?

These seem to be two missed opportunities.
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Old 02-15-2020, 06:22 AM   #15
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I did max out 401k last year before my retirement. No match unfortunately.

This year we stopped tax deferrals on DW's salary. Now going Roth due to lower bracket.
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