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Author: ed1007 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76420  
Subject: 401k matching Date: 10/13/2011 5:18 PM
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My employer has changed the matching rules for next year.

Currently they match up to 5% of pay at a cap of $250 per month. They are changing this so that the cap is a yearly match of $3000 up to 5% of pay.

Currently I have enough deducted from each pay period to get the $250 match, this is below 5% of my pay.

The question is does it make sense to have 5% deducted from my pay each month until I hit the max $3000 for the year and then drop my deduction for the rest of the year so that my overall outlay is the same for the year. In effect I would be front loading the contributions and receipt of the match into the first half of each year. vs. spreading it out over the whole year.

Pros? Cons?
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Author: 0x6a74 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69659 of 76420
Subject: Re: 401k matching Date: 10/13/2011 5:54 PM
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The question is does it make sense to have 5% deducted from my pay each month until I hit the max $3000 for the year and then drop my deduction for the rest of the year so that my overall outlay is the same for the year. In effect I would be front loading the contributions and receipt of the match into the first half of each year. vs. spreading it out over the whole year.

Pros? Cons?



you'll hopefully get better answers ,but FWIW --

i think it's a lifestyle/heartburn thing.

i never got a match, but i front-loaded my contributions..

meant less money for most of the year, forcing me to live a BIT more frugally, and more money at the end, so i felt i could save and be generous at Christmas

but i was older and in a job where lay-offs were always a possibility so frugality and savings were important (and i didn't really have the self-discipline for either)

when i was younger and living pay-check to pay-check, but more secure in my job, i might have opted to spread it out (but back then the 401(k) didn't exist).


o... if your 401(k) investment options are good, there might be a slight advantage to putting the money to work sooner /my 401(k) always had pretty bad options

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Author: ziggy29 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69660 of 76420
Subject: Re: 401k matching Date: 10/13/2011 5:56 PM
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>> The question is does it make sense to have 5% deducted from my pay each month until I hit the max $3000 for the year and then drop my deduction for the rest of the year so that my overall outlay is the same for the year. In effect I would be front loading the contributions and receipt of the match into the first half of each year. vs. spreading it out over the whole year.

Pros? Cons?
<<

Do you know when they would fund the match? With every pay period, each quarter, once at the beginning, middle or end of the year? I'd want to use whichever approach gets me the most company match as early in the year as possible -- just in case you sever employment with them midway through the year, it would be nice to make sure you got as much employer match as you could before then.

As far as the big picture goes, if you're employed there for the entire year, it doesn't sound like it matters much. (If they were changing the other way -- from a single "maximum per year" to a "per pay period" contribution, you wouldn't want to max out your contributions before the last pay period to get all the match. But going in the direction you describe, it doesn't much matter.

#29

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Author: BruceCM Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69661 of 76420
Subject: Re: 401k matching Date: 10/13/2011 9:54 PM
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Does the plan allow you to change your salary deferral on demand?

The general rule is that you should defer the amount of your salary that will be matched. At tthat point tyou you should contribute to your IRA

Most individuals will avoid making non-matched salary deferral contributions to their 401(k) plans due to high costs and poor investment choices..but this varies by plan.

BruceM

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Author: CABob Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69662 of 76420
Subject: Re: 401k matching Date: 10/13/2011 10:48 PM
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Since 12 months @ $250 = $3000 per year it sounds on the surface that there is no difference, but, the devil may be in the details.
As other have said, ideally one should try to get the maximum employer contribution possible as early in the year as possible. I think you have to work out the details to see what is the most advantagous.
If you do not contribute 5% of pay does that mean your employer does not contribute 5%?

Bob

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Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69663 of 76420
Subject: Re: 401k matching Date: 10/14/2011 3:36 PM
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Something to watch out for:

Many companies do their match on each paycheck. If later in the year your contribution stops, so does their match. Even if you hit the IRS max contribution before the end of year.
5% of each paycheck is not the same as 5% of your total annual paychecks, if some have a 401k contribution and some don't.

My employer and supposedly many companies, do a "true-up" in January if this happens to you, and deposit the difference. I never trusted them to do this and to get it right, although I knew others who checked and said that they did it right.

Your case is a bit different, I think, and there are some missing details.
Is it a 1-for-1 match on the first 5% of your 401k deposit on each paycheck, but with a maximum annual cap of $3000 match? (Probably)
That would be: Your paycheck is $6000 and you contribute $300 (5%) and they contribute $300 (5%). They'd hit their cap in 10 months.

The question is does it make sense to have 5% deducted from my pay each month until I hit the max $3000 for the year and then drop my deduction for the rest of the year so that my overall outlay is the same for the year. In effect I would be front loading the contributions and receipt of the match into the first half of each year. vs. spreading it out over the whole year.

What you want to do is get as much company money as you can, as early as you can. That's free money. Free is good.

The generally accepted rule-of-thumb for retirement contrihutions is:
1st: The 401k until you've captured every bit of the company match.
2nd: A regular IRA -- IF and only if it is tax-deductable (it probably isn't).
3rd: A Roth IRA.

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