Good idea to max out 401k in the first few months of year?

New / Eng MSFTE
Dec 31, 2018 83 Comments

I know that if you want to invest 19k in the market it's better to do dollar cost averaging and invest some monthly.

Is this the case for 401k or Roth as well, or the brokerage handles the investment strategy?

My brokerage is Fidelity, employer Microsoft.

Assuming I don't need cash immidiately.

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TOP 83 Comments
  • New DuQvV7x
    No. Bad. Bad. Bad.
    Dec 31, 2018 20
    • Microsoft oAaS36
      This is a good plan if you plan on leaving MSFT and going to a company where they do not match in first year.
      Jan 1
    • Microsoft / Product
      Brazuka

      Microsoft Product

      PRE
      Bain & Company
      Brazukamore
      Hey OP, don't listen to the DuQV guy. He's either dumb or trying to fool you.
      Jan 1
    • Amazon / Eng Chad🕶
      If you want to front load your contributions but not have to deal with any type of true up by your company, just do some quick math.

      First month, contribute as much as you can, while leaving enough percentage to break up over the remaining 11 months to reach the minimum required to receive full benefit of your company's match
      Jan 1
    • VMware / Product lRQQ72
      Most decent companies match on what is put in, at the time it is put in. (as shown in the replies). Do yes good idea to front load for many reasons, from leaving the company to prioritizing the best investment options...
      Jan 1
    • Salesforce 2438ez
      DuQv is neither dumb nor trying to fool you, judging from how many relevant and accurate posts he has made previously in the Money topic. It’s up to the company how to do matching. Some, like Microsoft it seems, match as you contribute. Some match a max per paycheck, and if you donated faster than that, they may match extra at the end of the year to give you the maximum match benefit as if you had contributed throughout the year instead. Some match a max per paycheck, and if you donate faster than that, too bad, you lose out on potential matching. DuQv was warning against this third type of match. If you’ve done your homework and know you’re not in the third group, feel free to frontload your contributions.
      Jan 3
  • Google / Eng poogers
    Yes. Good. Good. Good.
    Dec 31, 2018 2
    • Facebook haKI43
      This is the right advice. Lump sum historically outperforms dollar cost averaging and MSFT has ‘true up’ so no match will be wasted. Other guy has no idea what he’s talking about.
      Dec 31, 2018
    • Microsoft / Eng Tc292k
      This.
      Jan 1
  • Google Cmcnndns
    Don’t worry about it too much. Theoretically lump sum is expected to perform better because your employer match + your money sits in the market longer.

    I still chose to DCA it because the markets make me nervous right now.
    Dec 31, 2018 11
    • Google / Mgmt Dian
      Yeah DCA is good. I thought you were market timing the drop. Even better than DCA is value investing (Google the term)
      Jan 2
    • Oracle
      boobz

      Oracle

      PRE
      Google, Facebook, Instacart, Twitter, Uber, Air Asia, IBM, Cisco
      boobzmore
      The question was "how do you know this is a bottom", not "is it good idea to time the market" or "does DCA work".
      Jan 2
    • Google / Mgmt Dian
      The answer to that question, dimwit, is that it's the wrong question to ask. You should never ask whether it's the bottom yet or not. Rather what you want to do is estimate the long term value (based on estimated cash flow of the business 10 years later) of individual stocks or sectors or indices and gauge whether they are undervalued. Buy if they are, sell if they're over valued based on your analysis. Never try to anticipate any "bottom".
      Jan 2
    • Oracle
      boobz

      Oracle

      PRE
      Google, Facebook, Instacart, Twitter, Uber, Air Asia, IBM, Cisco
      boobzmore
      Really? Some dumbass declares a bottom and I'm the "dimwit" for doubting him? Good show, lad, carry on.
      Jan 2
    • Google / Mgmt Dian
      Of course you should doubt him. That's what I wrote if you read carefully.
      Jan 2
  • Microsoft unfanged
    Always max the 401k. You can then use this early money for ETF. But if you want to do average cost smoothing you can just buy some low risk interest bearing assets getting 2-3% and then convert to ETF monthly. Makes no sense to match 401k slowly, leaving money on the table.
    Dec 31, 2018 5
    • Google Cmcnndns
      There’s a thought.
      Dec 31, 2018
    • Microsoft / Eng Tier 1
      This is the right answer. But it’s a lot more effort.
      Dec 31, 2018
    • New / Eng MSFTE
      OP
      What do you mean by "use early money for ETF"? Also why convert to ETF? For dividends?
      Jan 1
    • Google Cmcnndns
      Is there an easy way to do it other than defaulting all your contributions to the Vanguard money market fund and manually buying VTSAX or whatever later?
      Jan 1
    • Microsoft unfanged
      ETF is exchange traded fund, basically a way to buy a ‘stock’ of a market index like S&P 500.
      Jan 6
  • Bloomberg Terminal!
    Dollar cost averaging
    Dec 31, 2018 3
    • Google FcSg75
      Better to Max out in first month into a money market fund. And then move into equity over the year!
      Dec 31, 2018
    • Intel superrr
      How can you move the money from money market to a 401k? The contributions should come from employer
      Dec 31, 2018
    • Microsoft / Eng bebK16
      Dollar cost averaging is provably worse than lump sum long term. DCA is a risk mitigation. If you're okay with the risk, you will get more reward.
      Jan 1
  • Amazon gVNd04
    Lump sum investing tends to perform slightly better (citation needed) because markets tend to go up more than down. Dollar averaging would be better if you're about to fall off a cliff. You can't predict the future. Dont over think it.
    Dec 31, 2018 1
    • Lump sum tends to be better, except when it isn't (right before a cliff). Depends on your risk appetite.
      Dec 31, 2018
  • Microsoft
    🐙M🐙

    Microsoft

    BIO
    🐙
    🐙M🐙more
    Good in that it gives you more time for growth, bad in that it doesn’t spread your investment over an even period of time. But as long as you’re making other investments and keeping them evenly spread out you should be fine
    Dec 31, 2018 0
  • If you switch jobs during the year and both employers match 401k, can you get max matching both times?
    Dec 31, 2018 8
    • New DuQvV7x
      If the question is can you get max employer match from more than one employer, the answer is yes.

      Employee contribution is 18.5k max. Employers (all) can add up to 54k.

      I did this for several years as a W2 employee for 2 firms (One salaried, one hourly).
      Jan 1
    • Google / Eng
      prodaccess

      Google Eng

      BIO
      Top Contributor or GTFO
      prodaccessmore
      You cannot contribute more than 19k pre-tax but I wonder if it would be possible to get the full match from you first employee, then contribute another 19k on your second employee to also get their match and then rechacterize one of the 19k contributions to after-tax. Assuming 50% match, this would result in 54k, within the 401k limit.
      Jan 1
    • New DuQvV7x
      You don’t have to re-characterize.

      The match does not depends on whether it is pretax or post tax.
      Jan 1
    • Microsoft / Product
      Brazuka

      Microsoft Product

      PRE
      Bain & Company
      Brazukamore
      DuQv is spreading lies all over this post
      Jan 1
    • New DuQvV7x
      Editing my post above

      Your max applies to both pre and post tax. As noted by @prodacess

      I set the max for both employers to max employer match.

      And then *withdrew* the after-tax contribution by EOY. Though you have till 4/15 of the next year to do this.

      This preserves the employer contribution.

      I did not recharacterize because I also find a SEP IRA which provides a slightly better deal for business owners.
      Jan 1
  • Scientific Games objectis
    If you max out within first few months, you will not be able to get a company match for remaining of the months. At least thats how my employer does it.
    Jan 4 4
    • Microsoft lHcN54
      Depends on the employer. Microsoft matches whenever you put your money
      Jan 4
    • Microsoft / Eng Tier 1
      Why would you get a company match when you don’t put any money in that month?
      Jan 4
    • Microsoft lHcN54
      What months are you talking about? Microsoft doesn't restrict how much it matches per month. If you put all your $19k in January, it'll match $9500 in January.
      Other companies - yes, they restrict maximum match per month, so even if you maxed in January it will be able to match only up to some amount (for example, $1000).
      Jan 5
    • Microsoft / Eng Tier 1
      Wow that’s really dumb.
      Jan 5
  • Microsoft rocket
    Hard to predict the outcome ... it could be a Bad idea cause you are trying to time the market (assuming right now stock are cheapest). Spreading it evenly across the year provides better returns if the market corrects/crashes further and I think there is a likelihood of that happening this year.
    Dec 31, 2018 3
    • New / Eng MSFTE
      OP
      In fact contributing max as soon as you can is not timing the market. It's based on the philosophy that time in the market better than timing the market, (which I don't fully agree with). Spread over the year is more of timing the market.
      Dec 31, 2018
    • Microsoft rocket
      Depends on how the event unfold ... let’s assume Q1 is the highest point for the year 2019 followed by a shallow crash in H2 2019 then you will lose more then the person who has evenly spread. FYI ... this happened to me this year when I made a 50% contribution in my bonus paycheck that covered all my 401k and unfortunately September 15 was the peak for this year and when I look at my returns it’s -10% compared to my colleagues at -6% for the same fund(bitc life)
      Dec 31, 2018
    • Google / Eng
      prodaccess

      Google Eng

      BIO
      Top Contributor or GTFO
      prodaccessmore
      What you are proposing is timing the market. If you think about how the market will trend over the next 6 months before investing in your 401k you are timing the market.
      Jan 1
  • Pinger / Eng create💻
    If you are changing jobs that year, check if your old or new employer matches more
    Dec 31, 2018 3
    • New / Eng MSFTE
      OP
      Do you know comoanies matching more than 50% of what you pay, max $9500?
      Dec 31, 2018
    • Netflix / Eng Az2H91
      $9,800 is the max match you can get at Netflix.
      Dec 31, 2018
    • Microsoft / Product
      Brazuka

      Microsoft Product

      PRE
      Bain & Company
      Brazukamore
      max is based on government regulation.
      Jan 1
  • LinkedIn / Eng
    howd

    LinkedIn Eng

    PRE
    Amazon
    howdmore
    My 2c in this, please feel free to comment. In a bear market? Probably not. But will this be a bear year?
    Jan 1 1
    • Microsoft
      Sharkweek

      Microsoft

      BIO
      I print money.
      Sharkweekmore
      We most certainly are in a bear market right now.
      Jan 1
  • Microsoft / Eng Tier 1
    Dollar cost averaging is better.
    Dec 31, 2018 0
  • Microsoft lHcN54
    This is a great idea in general, but a BAD idea of you expect a bear market. I expect a bear market, so will NOT be front-loading aggressively
    Jan 1 2
    • Google / Eng
      prodaccess

      Google Eng

      BIO
      Top Contributor or GTFO
      prodaccessmore
      What if the market recovers in February?
      Jan 1
    • Microsoft lHcN54
      What do you mean by "recover"? Do you think stocks have a lot of room to grow? I think, they are way overbought already, so sooner or later (most likely this year though) they'll go down significantly. Same as Bitcoin
      Jan 4
  • New b37
    My employer does not offer a 401k or other tax-advantaged retirement plan, so I can't comment on that part of it, but in general dollar cost averaging is the way to invest. If you put all your savings in now and the market tanks, you lose money. If you spread your investment out, you will get more shares for the same money (because you'll be buying the dips). The only way DCA works against you is if the market is very high all year long and then tanks toward the end of the year and never goes back up.
    Jan 1 1
    • Google Cmcnndns
      Or you know it could just keep going up like it generally does like which is about 80% of the time.
      Jan 1
  • Google / Eng
    prodaccess

    Google Eng

    BIO
    Top Contributor or GTFO
    prodaccessmore
    What I usually do is to max out the 19k pre-tax with the bonus in January, getting the 50% match, and then spreading out the 27k after-tax over the year.
    Dec 31, 2018 1
    • New / Eng MSFTE
      OP
      I was thinking of the same, if I felt better about the markets
      Dec 31, 2018
  • Microsoft / Eng
    000000010

    Microsoft Eng

    PRE
    Amazon
    000000010more
    Time value of money... Get that match asap
    Dec 31, 2018 0
  • LinkedIn vfgh215
    If you're getting a huge bonus/check in January then pump as much as you can in 401k, less taxable dollars and more money in your paycheck throughout the year
    Dec 31, 2018 0

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