Should You Be Maxing Out Your 401(k) at the Beginning of the Year?
Take Your Finances to the Next Level ➡️ Subscribe now:
Download FREE Financial Resources from the show ➡️
Sign up for the Financial Order of Operations course ➡️
Download The Money Guy Net Worth Tool ➡️
Our professional focus is on financial planning and investment management, and we leverage our knowledge for your benefit. We help you focus on the things you can control and manage the things you can’t. Visit our site for more info ➡️
Facebook:
Instagram:
Twitter:
TikTok:
Let’s make sure you’re on the path to financial success – then help you stay there!
The Money Guy Show takes the edge off of personal finance. We’re financial advisors that believe anyone can be wealthy! First, LEARN smart financial principles. Next, APPLY those principles! Then watch your finances GROW!
We can’t wait to see you accomplish your goals and reach financial freedom! New shows every week on YouTube and your favorite podcast app. Thanks for coming along on the journey with us….(read more)
LEARN MORE ABOUT: 401k Plans
REVEALED: Best Investment During Inflation
HOW TO INVEST IN GOLD: Gold IRA Investing
HOW TO INVEST IN SILVER: Silver IRA Investing
Most people dream of having a comfortable retirement. One of the best ways to achieve that goal is to diligently save for retirement throughout your working life. One of the most popular vehicles for retirement savings is a 401(k) account. If you have access to one, it’s important to take advantage of it.
One question that often comes up is whether or not you should max out your 401(k) contributions at the beginning of the year. The answer, as with most financial questions, is “it depends.”
First, it’s important to understand what “maxing out” your 401(k) means. For 2021, the maximum contribution limit for a 401(k) is $19,500. If you’re over 50 years old, you’re allowed to make an additional catch-up contribution of $6,500.
So, should you contribute the maximum amount at the beginning of the year? There are a few factors to consider.
First, do you have the cash flow to do so? If you’re living paycheck to paycheck, it may not be feasible to contribute that much all at once. In that case, it may be best to spread out your contributions throughout the year.
Secondly, if you’re an employee and your employer offers a match, you’ll want to consider the timing of your contributions to make sure you receive the full match. If your employer matches a percentage of your contributions, it’s important to contribute throughout the year to receive the full match. If you max out your contribution at the beginning of the year, you may miss out on the match in the latter part of the year, leaving money on the table.
On the other hand, if you’re self-employed or don’t have a matching program, maxing out your contribution at the beginning of the year can provide some benefits. For one, you can take advantage of compounding interest, which means your money has more time to grow. Additionally, you’ll also be able to take advantage of tax-deferred growth on your contributions for the entire year.
One final thing to consider is whether or not you’ll be able to maintain your contribution level throughout the year. If you max out your contribution at the beginning of the year but then find yourself in a cash crunch later on, you may have to reduce or stop contributions, which can hurt your long-term savings goals.
In conclusion, whether or not you should max out your 401(k) at the beginning of the year depends on your overall financial situation. If you have the means and you’re able to maintain your contribution level throughout the year, it can provide some benefits. However, if you live paycheck to paycheck or your employer offers a matching program, it may be best to spread out your contributions throughout the year to maximize your savings potential. Regardless of your strategy, the important thing is to consistently save for your retirement throughout your working life.
This would only make sense if you dont get a company match
My employer doesn’t match unfortunately but does make an annual profit sharing contribution of 3-5% so I do front load it anyway without worrying about any true ups.
If you don't get fired from your job and if the economy don't tank.
This is if a person makes it to 65years old.
I was getting out of the military and figured I wouldn’t get hired until later in the year. I maxed out my TSP contributions from Jan-May. This was 2020, where the market was dipping pretty low. I was completely unaware that I was contributing to a dip and was about to ride the rebound.
But, that was obviously not planned. I commit to spreading contributions throughout the year!
This is wonderful. I’ve been asking this question to myself in a way over the last three years and couldn’t find a direct answer to this. I discovered my previous company did not “true up” so I had to spread it out over the year. My current company I just learned today does in fact “true up.”
The question wasn’t about a straight 401k. It was about his ROTH 401k. I do both. My employer only matches the former. I spread out my matched 401k contributions and lump sum my ROTH 401 k portion at the beginning of the year.
my company doesn't match as you go, they pay our full match in march of the following year. some good and some bad about it, but i still get my money at least.
We had a guy at work who bragged about hes been maxing his 401k out by June for years. I asked him if he knew we didnt have this "true up" feature and he was totally PISSED… AT ME. LOL. I didnt do anything be help him lol.
Speaking as an accounting analyst that has worked at multiple companies that do multi-billion dollars in sales. I can safely say that a lot of large corporations do not do a true up.
401(k) true-ups should be required by law. They should extend to the end of the calendrical year even when the employment has been terminated.
Define Max out. Is that 19.5k or 56k?
I max out the 19.5k but keep going through out the year.
My company doesn’t true up, but it does have automated back door Roth 401k contributions. So I use my March bonus to max the $20.5k pretax and run Roth 401k contributions equally for the entire year to maximize my match. It’s a mix of both strategies.
Good Info!
I understand the logic of trying to get the money in early and maximize time in the market. But even if your plan does offer a "True Up", you also need to consider the possibility where you've maxed out your 401k for the year and then switch jobs mid-year. You'd lose out on the true up from the old employer and wouldn't be eligible for the match at the new employer until the following year. Much better to spread out your contributions throughout the year to do two things. 1. Still maximize the contributions up to the annual limit by the last paycheck and 2. Have every paycheck contribute at least enough to fully capture the employer match contribution.
I always project my contributions out over the year on a spreadsheet because I'm 90% sure my employer doesn't do the true-up. If you max out, you end up not getting the match for those pay periods. It's not super heard – just spread out whatever gets you your company's maximum match and if there's any left over, feel free to front load at that point if you so choose. Also, watch for any bonuses or unexpected pay increases.
My employer is one that does not match if you max your 401k early, so I have to reassess my contributions a couple times per year to make sure I get as close to 20500 as possible by my last paycheck of the year.
How I wish I had come across your fabulous channel when I was still working. All your videos are priceless!
I do something in the middle – I contribute a large portion during the first four or five months then spread out the rest so I still put in a minimum of 6% in order to ensure I get all of the employer match.
This year I incorrectly thought I was going to be leaving my job before the end of the year so I pretty much maxed out my 401k by April but with enough slack that I could just contribute 6% for rest of year just in case. I wanted to make sure I was still putting in as much as possible if I might be taking a break from saving for awhile.
It worked a little against me as my smaller contributions aren’t fully taking advantage of the market tanking but… at least I’m still adding to my account.
It is great, but like Brian said – make sure it is a true-up. I do the same thing, max it out between April – June, knowing I will get my 6% at the end of the year. Yes, you may miss out once every few years, but the majority of years you will come out on top. I fully funded our IRAs on Jan 5 🙂 You can imagine how that went, but I will do the exact same thing this coming Jan! HAHA!