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I recently changed my 401k from 5% to 100%. My logic is that I'm not in desperate need of cash (I have savings that are not being utilized) and my tax savings at the end of the year will be substantial. But others I speak with seem to think that I'm crazy. Is there something that I'm missing?
I recently changed my 401k from 5% to 100%. My logic is that I'm not in desperate need of cash (I have savings that are not being utilized) and my tax savings at the end of the year will be substantial. But others I speak with seem to think that I'm crazy. Is there something that I'm missing?
If you just have an enormous amount of cash, it might make sense. But do keep an emergency fund in place.
Just make sure you don't over-fund the 401k. There's a maximum yearly cap you need to stay under or you'll run afoul of the IRS. Other than that, what you do with your money is your business alone.
Be careful. In addition to overfunding/capping out, if your employer offers a salary-based match, it may no longer do so once you've contributed the annual max. In other words, your employer might only contribute matching funds for those pay periods in which you make a 401k contribution. If you max out early, you will lose the benefit of matching for the remainder of the year.
If you get a match, Just make sure you save room in your 401K for the match contribution. If you hit the limit your company payroll software should stop the contribution when you hit the max, but it will also turn off any of the company Match.
So you need to work the dollar amounts or percentages, each paycheck you put in the amount you need for the match, and the match amount, so on the last paycheck of the year you come as close to the limit as mathematically possible.
You can front load it, then step back the contributions, to just the amount needed for the company match. (Most HR system set the max of 25% of your paycheck per pay period also).
Also plan for any Raises, bonuses, profit sharing that you might get and factor that in.
One downside to your approach is that you'd buying the funds within your plan at today's dollars rather than take advantage of dollar cost averaging which works well in a mutual fund based portfolio.
One downside to your approach is that you'd buying the funds within your plan at today's dollars rather than take advantage of dollar cost averaging which works well in a mutual fund based portfolio.
He would still be dca and over time dca typcially lags lump sum investing anyhow
I'm surprised your employer will let you go to 100%. They have to take other withholdings out of every paycheck... insurance premiums, for example, and at the very least they need to take FICA taxes out of every check.
And how long do you plan to do this?? Until your savings gets to a low point of how much??
Then how much will you contribute?
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