I suck at understanding all things financial. My company offers a 1% 401k match. I have been liking maxing out my 401k early in the year (by allocating a large % of my pay until it maxes out, then enjoying larger paychecks the rest of the year) But a colleague told me that you don't get a match later when you are no longer contributing - which makes sense to me (isn't the match on what you're contributing?) She's convinced though that it's a bad idea that I max it out early. I'm just not getting why. If I contribute $18k or whatever over 5 months versus 12 months, wouldn't the match still be the same? What am I missing here. Thanks
No because your company is matching 1% off your gross paycheck ONLY WHEN YOU CONTRIBUTE. Once you hit your 18k and stop contributing, the 1% match also stops - throwing away free money.
Thank you, for some reason I thought the match related to my contribution. Now I get it!
A lot of people don't get this. The goal should always be to hit the IRS limit on your last paycheck of the year without ever contributing less than the employer match. With that being said, I prefer to make larger contributions earlier in the year to maximize tax free growth time in market and make contributions for the later months of the year only slightly above the employer match such that if I get a pay increase or bonus I have a margin to lower my contributions without going below the employer matching rate.
It’s a bad idea if you’re planning to switch to a company that’s going to match at > 1%. If you’re already maxed out at 1% match then you won’t get anything at new company saying matching at 3%. Otherwise it’s fine to put in money early. Time in market > timing market.
At FB the match is the same regardless of when you contribute the full amount. Maxing out ASAP means less tax on gains.
You're losing out on free money(1%)🤷🏻♂️. If you contribute to your max early in the year, your paychecks later in the year are a missed opportunity for your company to contribute.
If your company’s match is 1% and if you contributed 1% in January or throughout the year, the company will also match 1%. Again some companies match it every paycheck, others will do it every quarter. Both subject to how much of 1% you contributed so far. Contributing early and getting it matched sooner is always best. Maxing out early is also better. Reason is you won’t need to worry in case you quit or are fired:)
My company does 100% for the first 1500$, 50% for the next 1500$, and so on.. until 10% for remaining. That means I can maximize initially and get the company contribution early?
I would think so based on what you described. Again company specific rules apply for distribution of co match .
1 percent is really low. What is the company?
That is very low. But better than companies that don’t offer 401k!
Of course something is always better than other things.
You should be able to figure this out by looking at transactions in your 401K account.
There’s tradeoffs to both. By spreading out the contributions you are cost averaging more evenly. On the flip side, average market returns are a function of time. Meaning the longer (or earlier) you’re invested, the more you can expect the investment to grow, all things equal.