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I am able to meet the max amount early in the year (10,500). Is it better to do this in four months and get that money working for me tax deferred. Or, would I be better off dollar-cost-averaging over the year?

Same question for an IRA. Max out in January, or pay it over the year?

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I am able to meet the max amount early in the year (10,500). Is it better to do this in four months and get that money working for me tax deferred. Or, would I be better off dollar-cost-averaging over the year?



It depends on your plan. If it only provides matching contributions in periods in which you make contributions then you obviously want to have contributions in every period to get the match. If the plan provides a match based on your aggregate contributions then this issue goes away (of course that's true also if there are no matching contributions).

You then asked about the dollar-cost averaging issue. I know that is hyped by a lot of people and it does lessen the risk. However, my preference is to be fully invested as soon as possible. I grant you that the last two years may not seem to provide a pretty good basis that dollar cost averaging is the way to go - I just know that I don't want to miss any upticks and I can live with the downside risk. That is a personal feeling and not universally shared.
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I am able to meet the max amount early in the year (10,500). Is it better to do this in four months and get that money working for me tax deferred. Or, would I be better off dollar-cost-averaging over the year?

Same question for an IRA. Max out in January, or pay it over the year?

Two answers:

1) *I* personally would do the dollar cost averaging for both.
2) Does your 401K have a company match? If it does then you DEFINATELY do not want to throw away that match by maxing out too early. If you max out in August, you loose the match for the rest of the year.
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The match is the main issue. SOme plans will "true-up" at the end of the year, for people who deferred the max early. However, most do not and most plan sponsors do not understand the difference.

My advice is to divide the max by pay, and then work into your deferral percentage, assuming you are not allowed to differ a fixed amount. That way you get all the match.
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