Questions on maxing my 401k

[disneysteve]

I've only had a 401k for less than 2 years. 2018 will be the first year where I'm in a position to contribute the maximum allowed, $24,500 since I'm over 50. What I'm not sure about is how that works exactly. Will they automatically stop taking money out of my check when I hit that amount or do I need to track that? I also seem to recall reading something about not maxing it too early in the year because you could lose out on some of the matching funds.

Can anyone walk me through the details? Thanks.

One complicating factor is that although I know my contracted salary for my regular hours, I also work occasional per diem hours and we get a quarterly bonus so it's impossible to exactly determine when I'd hit the max.

[MooseBucks]

I think it’s going to depend on your company. Mine stops allow contributions when you hit your max. For the match they go back at the of the year and add it in if you maxed out.

[disneysteve]

I think it’s going to depend on your company.

I figured a call to Benefits was going to be in order.

[Like2Plan]

You should ask these questions of your plan administrator as most of your questions are plan dependent.
The plan should cut you off when you max out your contributions— as long as you are only contributing to one 401k plan.

I have seen the catch up contribution handled a couple of ways. Sometimes it is a separate election. However, DH’s last employer had all the 401k contributions in one big bucket— they matched 25% of the regular contribution period and it didn’t matter how soon you maxed it out. DH’s new employer matches 50% of 8%. They don’t match if you don’t make a contribution, so they have a bucket for regular contributions and one for catch up. But, I discovered that they do a “true up” at the end of the year. (So, you get the full match if on average you contributed at least 8%). Not all plans do that, though, so it is important to find out if yours does.

[disneysteve]

Other than asking if they automatically stop the contributions when I hit the max and how they handle the match, are there any other questions I should be asking?

[Like2Plan]

They should do automatic shut off. (It is a big deal for the plan to have to return contributions)
Ask if there is a separate sign up for the Catch up
Ask how the match works— will they do a true up at the end of the year if you max out contributions prior to the end we f the plan year?

[disneysteve]

Ask if there is a separate sign up for the Catch up

The catch up is the extra $6,000 you can put in if you are 50+, correct? It never even occurred to me that that wasn't just automatic. They know how old I am. I'm glad you mentioned that.

I'll try and give them a call on Monday and get all of these questions answered.

Thanks!

[corn18]

Who is the 401k through? You might be able to do most of this via the web and they might have all the plan information on there as well. They might not be open Monday due to President's day.

[disneysteve]

Who is the 401k through? You might be able to do most of this via the web and they might have all the plan information on there as well. They might not be open Monday due to President's day.

It's with Lincoln Financial. Duh. I didn't even think to look at the website. I have online access to my account. Let me go do that right now.

[disneysteve]

It's with Lincoln Financial. Duh. I didn't even think to look at the website. I have online access to my account. Let me go do that right now.

I see where I can change my contribution or alter my investment allocation. I can't find anything that discusses automatically cutting off contributions, if I need to do anything special to get the catch up amount in, or how they handle the match. I guess I'll need to give them a call. If they're closed on Monday, I can call on Wednesday.

Those Federal holidays are never on my radar because they aren't holidays to us.

[Jluke]

Here is my experience with a Fidelity 401k, maybe it will help:

Spillover Elections: this tells the plan what to do with your contributions once you have maxed everything out. Mine are turned to OFF. these would most likely turn into After Tax contributions if i didn't have it set to off. So setting that to OFF ensures that once I hit the max, no more contributions are made.

Company match: I get paid 26 times per year. I need to put in at least 6% every paycheck to ensure I get the match. If I were to max out my 401k prior to paycheck 26, I would lose out on the company match. So you need to find out if this is how your company match works (assuming a match) or if they do something called a True-up. If they do a true up, then you do not need to worry about maxing it out before your last paycheck.

Not sure if that helps as it could just be repeat information from other threads.

[Like2Plan]

The catch up is the extra $6,000 you can put in if you are 50+, correct?

Yes, that’s correct.

[moneybags]

JLuke's post is what I've experienced.

For the catch-up amount, that is usually a separate election that you have to make, it will not be done automatically based on your age.

In terms of the bonus payments - I try to figure out a percentage to withhold based on salary plus bonus. After bonus payments are received, I recalculate and change the withholding if necessary to stretch the withholding over all paychecks.

Another benefit to not front loading your withholdings is that you are more in line with dollar cost averaging.

[SavingSteve]

My company pays a true-up in March of the following year.
For people who contribute a lot, there's a possibility of some opportunity loss there. If you max out really early in the year causing the company match to stop, we won't receive the true-up until several months later. During that time the market could rise and the company match wouldn't be working for you. Or the market could drop and the shares would be purchased cheaper. But the point is, maxing out early causes a break in the consistent contributions which could be good or bad.

[kork13]

The others had already covered the biggest points. Ask your 401k administrator, I guarantee they can clarify everything... They almost certainly field those questions regularly.

Only note I'll add, you may be able to direct that no portion of your bonuses get contributed to the 401k (I can do that at least). That would allow you to schedule your contributions a little easier to endure you get the full match, since you'd only be contributing out of your normal paycheck.