I can easily afford to max my 401(k) each year. My employer has a match, which of course I'd like to maximize. Since I'm a tech worker, I'll almost certainly change jobs a few more times in my career, and some of those jobs will have 401(k) matches as well.
So it sounds like the right strategy here is:
- Put enough money into the 401(k) at the beginning of the year to claim the full employer match, but no more.
- At the end of the year, crank up the paycheck deduction as high as possible to hit the IRS max.
The logic here is that your annual 401(k) contribution cap is a limited resource that you want to spend wisely to chase employer matches. You want to collect the match from one employer, then change jobs and collect the match from another. If you pull this off once, it seems like it will easily pay for the tax losses from having the reserved $10K or so outside the 401(k) instead of in it.
The more sophisticated (but harder to manage) version of this strategy seems to be that you might not even bother to hit the IRS max, if you can't contribute fast enough that you can start in November and still hit the IRS max by the end of the year. Why? Because you might change jobs in the last few months of the year, and (again) double-dipping on employer matching is lucrative enough to cover the missed tax advantage. I don't think I'll try this version, but I'm including it because it does seem to be what the math implies.
Am I missing anything important?
EDIT: Since it keeps coming up: the money I'm holding back from my 401(k) would go into a taxable account with equivalent investments, not just sit around in my bank account.
Submitted May 22, 2021 at 03:28AM by Orborde https://ift.tt/348OSbv
