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Max out 401k or distribute evenly?

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  • Max out 401k or distribute evenly?

    Curious if there's any benefit to maxing out 401k fully early in the year, or are evenly spaced contributions throughout the year the way to go? I could max it out in 2 paychecks, but Would require dipping into my e fund for that month...

    Does it make a difference either way?

  • #2
    Given stock market history (up 7 out of 10 days, average long term), early is best. However, eligibility may play a part if you are in your first year at a particular employer, such as a new attending. For example, if you won't be eligible for a match until after your first year of employment, you would want to contribute enough after your first anniversary to get your full match. August would be such a month for many new attendings.
    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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    • #3
      In general, better to max out early. But some employers have weird matching schemes. Make sure maxing it out early in the year doesn't cause you to leave match on the table.
      Helping those who wear the white coat get a fair shake on Wall Street since 2011

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      • #4
        Here’s an article from the Mad Fientist on exactly this question:

        http://www.madfientist.com/front-loading/

        He concludes that the benefits are compelling (with a few caveats as Johanna and WCI mentioned earlier re: employer match, etc). Some of the comments on the article provide additional support for this approach. Hopefully you will find it helpful!

        I would also mention that it is very important to know the ins and outs of your particular 401k program beyond the details of any employer match. When I started my most recent job several years ago, I didn’t really pay much attention to the details and was surprised to see my 401k contributions stop in the midst of my first full calendar year after only putting in a few thousand dollars. It turns out that my plan didn’t allow any further contributions after one reached the federal compensation limit. So, a low contribution % precluded me from reaching the maximum 401k contribution before my income crossed over the limit. (Our plan has subsequently been altered so this no longer applies, but it was too late for me that year!)

        On the plus side, that was the proverbial “wake up call” for me that I needed to take some control of our finances which led me to bogleheads.org and WCI! And one of the reasons why I max out my 401k contribution within the first month or so each year.

        As an additional thought, I don't think I would rush to front load the 401k so rapidly that I would have to dip into my EF (since I would then turn around the next month to replenish that money anyway!)

        Best,

        WW

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