Spread Out Your 401K Investments Throughout The Year
July 22, 2008 – 6:04 amIf you want to maximize your companies’ matching 401k funds please listen up. Most companies match investments in your 401k or retirement accounts on a monthly basis. That means that if you don’t contribute every month you could be leaving money on the table.
This will affect people who start and stop contributions based on life events or cash flow needs, but it will also affect anyone who is “maxing out” their 401k. The current investment limit for a 401k is currently $15,500 per year. This limit could be less if you’re a highly compensated employee, which means you have an income over $105,000 per year. In this case your maximum allowed investment amount may be capped based on a percentage of your income.
In any case if you max-out your 401k in say October you are probably missing out on the 401k match from November and December. The best way to deal with this is to spread out your 401k investments evenly throughout the year. And don’t forget bonuses and the possibility of extra commissions if you’re a sales person. Most 401k administrators will let you specify a percentage of your income OR a fixed amount to be deducted each month. If you take your desired annual contribution and divide it out by the number of paychecks you receive a year you should be assured to get the full match.
Some companies have realized that this form of matching is hurting some employees, and they have taken steps to compensate employees after year end if this situation applies to them. My company actually sent out a letter recently that said they would make amends for any missed match funds after year end. Even with this change, however, it’s easy for such things to get messed up (and you lose some time for the money to compound). I’d rather take matters into my own hands and just spread out my contributions evenly throughout the year.
To learn more about highly compensated employees please checkout My Retirement Blog’s post on the topic here.
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5 Responses to “Spread Out Your 401K Investments Throughout The Year”
Great looking site. I love the frames around each post. Nice clear uncluttered look and what’s more some interesting looking content. I’ve subscribed.
If you don’t mind telling me, what social plug-in and rate this plug-in do you use?
Cheers
Dean
By Dean on Jul 22, 2008
Thanks Dean! Glad you like the site, and thanks for subscribing. I use the plug-in called “Sociable”,and it seems to work pretty well. I did a custom hack on it to include PFBuzz as an option, but I sent the update to the plug-in owner so hopefully it will be included in the next version.
As far as the “Rate this” goes, this is a part of SezWho that I just installed over the weekend. It’s a plug-in as well, and now that SezWho has a partnership with EntreCard you can earn entrecard credits for posting comments.
By todd on Jul 23, 2008
It’s amazing how many people give up this free “matching” money. If it was up to me I would make it manadatory to participate in a 401K plan up to the matching limit.
By Andys on Jul 23, 2008