I am trying to figure out what to do with my wife's 401k. She gets a 5% match from next year.

2 options:

1. Set the contribution to about 15% so she is contributing relatively evenly through all 26 paychecks of the year so she gets the 5%.
2. Front-load the contribution to about 75% so that she has reached the $23,500 limit in a few months but that limits the employer match at that point.

I think (1) is good if the market is not expected to be a good one, so we make more through the match. If the market is expected to be good, then it may make more sense to be in the market for longer.

Any thoughts on this?

What do you do?

Fins Up! said:

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I do it evenly though out the year to dollar cost average. Over time this pays off. If she front loads, she will eventually get all of the match when they do a true-up.

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I am not sure I understand.
Let's say she front-loads and reached the limit in 3 months. No contributions for 9 months.

Let's say she puts in $10k each for Jan and Feb and $3.5k for Mar.
Does this mean she will get a match of 5% on 10k ($500) each for Jan and Feb? Or is there a limit? I think I remember there being a limit of how much you can get as company match each time.

Fins Up! said:

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I do it evenly though out the year to dollar cost average. Over time this pays off. If she front loads, she will eventually get all of the match when they do a true-up.

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"true-up" is a new concept for me. Had never heard it all these years! Not sure why. Let me look into it.

I'd probably try to back load in 2025, but that's just me.

I think I had worded it wrong in my earlier post. I checked the plan doc. It says:

Quote:

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Currently, the company matches 100% up to the first 5% of your contributions. The company match contributions may not exceed 5% of your eligible earnings.

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So it seems like if she designates a percentage of her salary that amounts to $10k per month, then for Jan she gets

Her contribution for Jan: $10k
100% of first 5%: $500
So she puts in 10k and the company matches with $500.
Same for February.
For March she puts in $3.5k and the company matches $175.

Total match $1175.
This means the match amount is not affected whether I front load or not.
Is my understanding correct?


Staggering over the year means I get the advantage of DCA though which I won't here.

They will fail their testing if they don't true up a match.

If it is a "discretionary contribution" then they can do what they want.

Kenneth_2003 said:

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You're just over complicating it.

4 months vs 12 months over an investment horizon of 15,20,25+ years... Don't get cute and play games.

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There may be a difference though.
If my wife stays in her job, then it may make sense to do 12 months. But if she gets laid off or quits or gets fired, then she won't be able to get to 23.5k. In that case front loading helps.

I was at my previous job (hellish place) for 4 months this year before I couldn't stand it and quit. I socked away about 60-75% to my 401k and almost hit my limit. I am not working right now in a corp job so I cannot hit the limit but it would have been worse.

That said, my wife is likely to stay there next year.

Fins Up! said:

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The match is based on compensation, not contributions.

Say your wife makes 100k, and her company matches 3%, and she front loads her maximum contribution and she's under 50. That $23,500 is 23.5%, no matter when it is contributed. If they match at the time of her paycheck, it will only be 3% at that time and she will complete her limit early. It's still 23.5%, and they didn't match the full 3% because she finished her contributions early. They will "true it up" at the end of the plan year to make their match equal 3%. Bonuses are included in this calculation.

Dollar cost average evenly throughout the year. You'll catch more of the highs and lows over the course of years and you'll average better because you have more market entries. It's simple financial physics.

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My company doesn't do a "true up" but will just contribute every paycheck. Even if I stop, until they catch up.

Round made up numbers, say I make $100k. My match is 5%. So my paycheck is $4,167. If I contribute $2,500 to my 401k in my Jan 15 paycheck and $2,500 in my EOM paycheck the company will only contribute the $208 each of those paychecks. But if I stop contributing my company will still contribute $208 each paycheck.

That sounds like a 5% company contribution, not a match. A match, by definition is just that. A contribution is discretionary or could be Safe Harbor Covenant.

But if I don't contribute at all neither will they…if I do 3% all they'll contribute is 3%.

It's probably a match then, and they are spreading out their contributions in lieu of the "true up". It achieves the same thing. Ultimately your plan document tells you exactly what it is and how they will do it.

I went to front loading mine a number of years ago because I wanted my money working in the market for longer. I am viewing it as dollar cost averaging on a year-by-year basis since I will be investing a similar sum each year.

You can dollar cost average throughout the year and I won't say someone is making a mistake and I think if you have a one time chunk of cash that won't repeat (inheritance, lottery, asset sale, etc), I like monthly DCA for a year or so.

$30,000 Millionaire said:

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I'd probably try to back load in 2025, but that's just me.

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I want you all to remember I said this

Care to elaborate?

AggieT said:

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Care to elaborate?

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I share his concerns that the chance of a bear market in the first half of the year is a possibility especially if Trump does some of his inflationary policies that force the Fed to stop lowering rates and potentially tighten mid year. There are other possible reasons for a major drop thanks to very high valuation levels.

That said, the ability to market time is very hard and likely wrong based on past history.

Comeby! said:

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You front load if you don't plan to stay with the company the whole year.

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Not if they only put in ratably or do a true up at the end of the year. You miss the match and won't get your new employers plan match if you have hit the statutory limit with company 1.

I would front end load if you are retiring just to max out my 401K.

AggieT said:

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Care to elaborate?

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I expect market to pull back 1,000 points

Correct, didn't want to type all that out. But that's a reason for it.

$30,000 Millionaire said:

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AggieT said:

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Care to elaborate?

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I expect market to pull back 1,000 points

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Care to elaborate on why?

I think animal spirits and a president who watching the stock market daily will prop things up for awhile longer.

I've been around a number of plans as an administrator and even as an advisor and I've always seen a true up. Even had some plans that didn't pay their matching until the end of the plan year. True, every plan is different and the Plan Document is the guide.

I could see an instance where the plan was top heavy to begin with and was going to fail testing, as the match true up would disproportionately benefit the HCEs. Hence, no true up. But if your plan fell into this category, why wouldn't you do a Safe Harbor election? If you do that, you are either going to do a Safe Harbor contribution or a SH match with does require a true up (I have to do one every year.)

But you are right, there are nuances and it depends on the plan and the census of the plan.

permabull said:

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$30,000 Millionaire said:

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AggieT said:

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Care to elaborate?

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I expect market to pull back 1,000 points

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Care to elaborate on why?

I think animal spirits and a president who watching the stock market daily will prop things up for awhile longer.

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Reversion to mean. Prices not seen in 8 months.

I def believe in reversion to the mean (jack bogle head here) but I don't see that happening in the first year of a president who has already convinced half of America the economy is good again and will make sure his economy is going great no matter what the costs

htxag09 said:

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But if I don't contribute at all neither will they…if I do 3% all they'll contribute is 3%.

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Some plans have Regular Match (alternatively called Employer Match) and Non-discretionary Match (alternatively called Safe Harbor). A Regular Match matches employee contributions up to (generally) a certain percentage of your income and up to the amount your contribute. A Non-discretionary Match contributes up to (generally) a certain percentage of your income, whether the employee contributes or not, so it can exceed what an employee contributes.

Every plan is different, it all comes down to how the plan is structured. There are also other types of employer contributions, like Employer Profit Sharing that can appear. You should ask your HR team for a copy of your plan document and keep it in your files. There is usually a section for Contributions that outlines all of the above. This document will also explain things like vesting, loans, distributions, and other features of your plan. It is a very dry read but you should not count of on your employer always administering your plan correctly or an audit/annual compliance figuring it out.

There are also different rules for when Employee versus Employer contributions have to be deposited. Employee contributions are stricter. Employer Matches generally just have to be done by the time the tax return is filed.

The IRS - Retirement Plans page is actually quite useful.

(this was meant as general info, not particularly directed at the poster I responded to)

$30,000 Millionaire said:

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permabull said:

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$30,000 Millionaire said:

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AggieT said:

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Care to elaborate?

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I expect market to pull back 1,000 points

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Care to elaborate on why?

I think animal spirits and a president who watching the stock market daily will prop things up for awhile longer.

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Reversion to mean. Prices not seen in 8 months.

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If there was a reversion to a mean then the market would be flat infinitely.

Spread it out, cost average the price and max out employer contribution. No reason to front load.

infinity ag said:

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$30,000 Millionaire said:

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permabull said:

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$30,000 Millionaire said:

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AggieT said:

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Care to elaborate?

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I expect market to pull back 1,000 points

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Care to elaborate on why?

I think animal spirits and a president who watching the stock market daily will prop things up for awhile longer.

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Reversion to mean. Prices not seen in 8 months.

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If there was a reversion to a mean then the market would be flat infinitely.

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Actually if you look at the last 3 to 5 years we are pretty close to the average especially if you factor in inflation (increased inflation eventually leads to stock price increases as revenues and profits increase with the rate of inflation)

If you look at the past two years yeah we we have had back to back 20%+ years but we had a -20% year before that, so if you annualize returns over the last three years we are pretty close to that 11% historical average.