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Front loading 401k / IRA Q1 of each year
Old 04-06-2018, 09:26 AM   #1
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Front loading 401k / IRA Q1 of each year

Has anyone here done something where they front load their 401k and IRA money the first quarter of the year?

I could theoretically max our 401k and IRA within the first five paychecks of the year (@70%) , each year, then dialing back contributions to company match min for the remainder of the year.

I would think having more shares purchased sooner in the year, would yield a higher result, but I realize it matters where market tops/bottoms are and is somewhat aikin to "market timing?"

It's an interesting modified DCA, where I would basically be DCA'ing 38% of our annual contributions in the first 25% of the year. The other 62% would be contributed evenly over the remaining 75% of the year.

It's an option I have but curious if other's did this when w*rking. I feel it eliminates some risk of potentially being laid off later in the year, if you hadn't front-loaded, you might struggle to meet that year's min. Then again, if you get laid off you probably have other problems.

I feel like it could eliminate some stress as well, just knowing that 75% of the year I'm basically just contributing company match minimum.

I have 3/4 months living expenses in cash, so there is really no real risk to doing this IMHO, beyond the market taking a dive, every year come March, where I missed a nice buying opp.

Good strategy or no? I can spend Nov/Dec building up the cash and then starve my cash first quarter of every year until my contributions dial back.
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FIRE in 2031 @ 50yrs old (+/- 2yrs) w/ a hypothetical $2.5mil portfolio, 3 appreciated homes worth $1.0mil and rental income to fund my gap years until RMD. Assets will go to an inherited IRA where I plan on watching the investments grow until I die or the trust gets executed.
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Old 04-06-2018, 09:56 AM   #2
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I front load my catch up and ratably deduct my regular 401k contributions
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Old 04-06-2018, 10:24 AM   #3
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I've never done that, but it should give a little boost to returns on years
where the market is up. You could check to see if your company does a
"true up" on the match and if so you could front load the entire contribution
limit.

Another thing to consider is where is the money you use to cover making
front loaded retirement contributions invested before you transfer it ? If it is
already in the market, then the net benefit isn't nearly as much as it seems
at first glance.

I max out my IRA limit and my 401K limit every year. I make my backdoor
Roth IRA contribution for the year on the first business day of the year, so I
do front load that limit. On my 401K, I set my contribution @ 26%, level
throughout the year. I start with the contribution all going to pre-tax
(deductible) until I hit the $18.5K limit, then the contributions go into "catch
up" until the $6K limit is reached. I reach the limit for pre-tax + catch-up
($18.5K + $6K) around July. After I reach that limit, my contributions go
into after-tax for the rest of the year and get mega-backdoor Roth'ed at the
end of the year. This results in different tax withholding rates between the
first half of the year and the second half. It works out pretty well though,
because I will reach the SS earning cap in Sept for the year and my take
home paycheck is increased for the rest of the year because SS is no longer
deducted. Overall, it results in a fairly level paycheck per pay period
throughout the year with just a couple bumps.


My priority is keeping a fairly level monthly income through the year while
max'ing out my savings limits. I could front load my contributions, but the
money I would use to cover doing that is already invested in a taxable
brokerage account, so the benefit is marginal for my situation.
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Old 04-06-2018, 11:34 AM   #4
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I do it. Shelter income as soon as possible.
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Old 04-06-2018, 11:55 AM   #5
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My company doesn't do a "true up", so I have to make sure I'm contributing at least 6% every week of the year to get the maximum company match. I have a spreadsheet I use to keep track of when I need to drop my contribution amount to ensure I can get the full match. Since my pay is variable (based on how much OT I work), I have to make assumptions about how much or little OT I'm likely to get near the end of the year to ensure that will still work out. That generally means dropping to at or near the minimum in the fall and ratcheting it back up as the year closes out to get to the max contribution and max matching.
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Old 04-06-2018, 12:36 PM   #6
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Quote:
Originally Posted by exnavynuke View Post
My company doesn't do a "true up", so I have to make sure I'm contributing at least 6% every week of the year to get the maximum company match. I have a spreadsheet I use to keep track of when I need to drop my contribution amount to ensure I can get the full match. Since my pay is variable (based on how much OT I work), I have to make assumptions about how much or little OT I'm likely to get near the end of the year to ensure that will still work out. That generally means dropping to at or near the minimum in the fall and ratcheting it back up as the year closes out to get to the max contribution and max matching.
I built out a spreadsheet and set some reminders in the phone to change the withholding next year.

My suspicions were correct, no good reasons NOT to do this so far. I can't wait until I can expand into the Mega Roth category. Need to go get a better paying job first, or get rid of some daycare costs lol.
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FIRE in 2031 @ 50yrs old (+/- 2yrs) w/ a hypothetical $2.5mil portfolio, 3 appreciated homes worth $1.0mil and rental income to fund my gap years until RMD. Assets will go to an inherited IRA where I plan on watching the investments grow until I die or the trust gets executed.
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Old 04-06-2018, 06:10 PM   #7
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During my last 10 years, I maxed out my 401K by end of Q3. The extra cash in Q4 made Thanksgiving though New Years expenses quite manageable.

Nothing wrong for doing it to juice your compounding (IMHO).
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Old 04-07-2018, 07:38 AM   #8
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This year, the year I retire, is the only time I'm doing it. I just preferred to be more of a DCA guy in past years.

My Megacorp has a true up. Supposedly I'll get it next year even though I've left.

Avoidance of true-up is almost a sport at Megacorp. I remember recently reading of people who got less than 10 cents in true up because they deducted so perfectly. Not me, even though I spread it out, I'm not that precise and my deductions usually end in October or November. I always get a couple hundred or more in true up. The wait time for true-up is the down side.
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Old 04-07-2018, 07:56 AM   #9
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I frontload my 401(k) every year. (I do not get any type of match.)
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Old 04-07-2018, 09:52 AM   #10
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My mega does not true up.
I contribute to a money market every month and then distribute the contribution to the account to get to my desired AA.
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Old 04-07-2018, 10:06 AM   #11
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I see nothing wrong with it, in fact, I've read articles that promote it due to the fact that the market rises about 70 percent of the time. I used DCA throughout the year because I found it easier for budgeting purposes. However, I did do some Roth IRA conversions early in the year.
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Old 04-07-2018, 11:53 AM   #12
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I did it at my last job. My 401K and over 50 catch up were maxed out by the end of Q1, primarily because bonuses were paid in February. At prior companies, this would have affected my company match negatively, so I have only done this the four years I was with this company. It probably had a minimal impact on my overall balance because I only did it for a few years, but over a long career it could make a noticeable difference.
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Old 04-07-2018, 06:59 PM   #13
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I max my Roth every January, and this year I invested 75% of my annual bonus in March. So yes, you're not the only 1 out there.
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Old 04-10-2018, 10:59 PM   #14
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We did this when we were working. DH contributed almost 100% of his pay to his 401K until maxed out, and I contributed ratably with my regular pay but always maxed out when bonuses were paid in Q2. Worked well for us.
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Old 04-11-2018, 07:49 PM   #15
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I normally do the Roth 1/1 but this year waiting to see if I get laid off. Partial years pay + severance + pto might push me over the income limit.

I can't afford to do the 401k that fast regardless.
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Old 04-12-2018, 06:11 AM   #16
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Whether one's employer does a match and a true-up of the match is the key to know whether this is a good idea or not if one wants to get the most match.

It can get complicated, too, if there is no true-up and bonus checks are paid.

For instance, my wife's company does not do a true-up, so she needs to contribute at least 6% of every paycheck and every bonus check to her 401(k) to get the largest possible match. If she has already maxed out her $24,000 [2017] contribution limit, then no more company match for all the rest of that year's paychecks.

Since the amounts of bonus checks are unknown, she has to "reserve" enough contribution to be made all the way through December, but also just in case not have the reserve be so large that if the bonus does not happen that she still has enough money in the last paycheck to hit the max.

She missed out on the max match a few years before we realized the situation. We also think she may be one of only 2 people in a company of hundreds that gets the maximum possible match and makes the maximum possible contribution.

One can still front-load for a few months though.

Sorry for posting something so complicated.
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Old 04-12-2018, 09:51 AM   #17
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Originally Posted by LOL! View Post
Whether one's employer does a match and a true-up of the match is the key to know whether this is a good idea or not if one wants to get the most match.

It can get complicated, too, if there is no true-up and bonus checks are paid.

For instance, my wife's company does not do a true-up, so she needs to contribute at least 6% of every paycheck and every bonus check to her 401(k) to get the largest possible match. If she has already maxed out her $24,000 [2017] contribution limit, then no more company match for all the rest of that year's paychecks.

Since the amounts of bonus checks are unknown, she has to "reserve" enough contribution to be made all the way through December, but also just in case not have the reserve be so large that if the bonus does not happen that she still has enough money in the last paycheck to hit the max.

She missed out on the max match a few years before we realized the situation. We also think she may be one of only 2 people in a company of hundreds that gets the maximum possible match and makes the maximum possible contribution.

One can still front-load for a few months though.

Sorry for posting something so complicated.
Excellent point! This is the case with me, so my plan was to just maintain the 5% for remainder of the year, to lock-in the company match minimum.

This will work well for me since my bonus is paid in Q1. I typically use that to fund my OUR Roths, so nothing will change there. But I do plan to contribute JUST enough into Q1, that when I drop down to 5% to meet company match, that I should end the year, with a tiny but of excess that last paycheck in December. DW is a little different story, occasionally she gets a bonus company match contribution in Q1, its been consistent lately, not guaranteed, but we would have enough time to adjust downwards to maintain her company match minimum, without reaching it before the last paycheck.

I'm astonished by the folks who don't take advantage of company match. Easiest, best free money a person can get their hands on IMHO.

It's funny I thought I was such a genius for devising this plan, but of course all the smart folks are already doing this heh.
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AA (Stock/Bond/Cash ): 97.5/0/2.5% MIX (Small/Mid/Large): 25/25/50% BLEND(US/Foreign): 100/0%, REIT (Real Estate Equity): ~50% of Assets

FIRE in 2031 @ 50yrs old (+/- 2yrs) w/ a hypothetical $2.5mil portfolio, 3 appreciated homes worth $1.0mil and rental income to fund my gap years until RMD. Assets will go to an inherited IRA where I plan on watching the investments grow until I die or the trust gets executed.
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Old 04-12-2018, 09:53 AM   #18
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Originally Posted by badatmath View Post
I normally do the Roth 1/1 but this year waiting to see if I get laid off. Partial years pay + severance + pto might push me over the income limit.

I can't afford to do the 401k that fast regardless.
Admittedly, It would be a stretch for us to actually max close to end of Q1, but it's doable. Me for sure, DW isn't as high of an earner. I would just need to save a little extra to cover the mortgage and skimp by the first two months...and try not to go crazy during Christmas. Seems like a plan, not sure I'll follow it but I always intentionally aim high, so when I miss at least I'm close.
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AA (Stock/Bond/Cash ): 97.5/0/2.5% MIX (Small/Mid/Large): 25/25/50% BLEND(US/Foreign): 100/0%, REIT (Real Estate Equity): ~50% of Assets

FIRE in 2031 @ 50yrs old (+/- 2yrs) w/ a hypothetical $2.5mil portfolio, 3 appreciated homes worth $1.0mil and rental income to fund my gap years until RMD. Assets will go to an inherited IRA where I plan on watching the investments grow until I die or the trust gets executed.
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