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Front-Loading

I wonder what my HR department thinks of me.

Not only am I probably one of the youngest employees maxing out all of the available tax-advantaged accounts, I recently elected to divert nearly my entire paycheck toward these accounts.

Since I’ll be quitting my job sometime this year, I want to make sure I take advantage of my contribution allowances while I still can so I’m contributing as much as possible for the first part of the year.

This move got me thinking about whether front-loading your tax-advantaged accounts is a good thing to do every year.

There are a few reasons this could be a good idea…

Stocks Go Up

The S&P 500 has risen over 9.5% annually, on average, since 1928.

While it hasn’t been a steady march higher, the overwhelming trend is upwards so it is reasonable to assume that investing earlier in the year is better than investing later, since you’re more likely to capture a bigger piece of that upward movement. This is one of the main reasons dollar-cost averaging is considered a subotimal strategy for investing lump sums.

Postpone Taxes

Another benefit of front-loading your retirement accounts is that you defer your taxes until later in the year. If the majority of your pre-tax paycheck goes to tax-advantaged accounts, there’s very little income to tax so you don’t have to give the government as much of your money during the first part of the year (contributing to retirement accounts doesn’t affect your FICA taxes though so you’ll still have to pay the full amount for Social Security and Medicare each month).

You’ll end up paying the same in taxes by the end of the year but the money you save on taxes early in the year can be invested in your portfolio and can grow for you rather than for the government.

Tax-Free Growth

Front-loading also shields more of your investment earnings from taxes, since you’ll get more of your money into tax-protected accounts sooner.

Leave Your Job

If you lose your job or decide to quit during the year and you haven’t front-loaded, you may not be able to max out your contributions for that year. As I’ve shown previously, maxing out your retirement accounts can help you retire years earlier so front-loading helps ensure that you take full advantage of those accounts every year.

Final Savings Boost

If you’re like me and are preparing for your last year of full-time employment, it may be possible to eliminate all of your federal income taxes during your final year. If you calculate how many months it would take to max out your retirement accounts (remember to include your deductions and exemptions) and then only work that many months during your final year, you could avoid federal income tax altogether.

Employer Match

One caveat: You should talk to your HR department before front-loading any accounts that receive an employer match. Some employers only match a certain percentage if the employee also contributes the same amount so it’s possible front-loading would stop you from obtaining an employer match during the final months of the year.

I luckily receive the same employer contribution whether I personally contribute or not so I don’t need to worry about this but you should check before changing your monthly contributions.

If you do need to contribute every month to receive the match, you could always front-load the bulk of your contributions but leave enough of your allowance to contribute the match percentage for the rest of the year (you’ll probably want to also leave a bit of room to account for any raises you may get during the year).

Conclusion

The benefits of front-loading are compelling so I plan to front-load my retirement accounts from now on.

What do you think? Will you start front-loading your tax-advantaged accounts? Is anyone out there already doing it?


Image: Jessie Pearl

104 comments for “Front-Loading

  1. February 5, 2014 at 10:36 am

    Thanks for the article! I was recently discussing this with one of my colleagues and he had no idea. I’m considering doing this. Not sure if I will maximize in the first six months, but it’s definitely something I want to consider. Your article encouraged me to send an email to HR asking for the policy.

    • The Mad Fientist
      February 5, 2014 at 10:59 am

      My pleasure! I’m glad to hear the article spurred you into action. Hopefully your HR department gets back to you with some good news.

      • February 9, 2014 at 6:01 pm

        That is a great article MF. Back when I was starting my site in 2008, I compared results of dollar cost averaging my way into an S&P 500 fund evenly over 12 equal monthly contributions versus a one time lump sum investment on the first of the year. It turned out that between 1988 – 2007, it would have paid to front-load in each year, except for three ( sorry for the shameless plug by the way)

        http://www.dividendgrowthinvestor.com/2008/02/dollar-cost-averaging.html

        Of course, the year 2008 strikes me as a poor year to have front loaded. It seems that an year such as 2008 would have tilted the weights towards DCA vs Front Loading for a 10 – 20 year of retirement contributions. Once again, do not let taxes be more important than the investment strategy.

        By the way really dig your articles. Keep up the good work!

        Dividend Growth Investor

        • The Mad Fientist
          February 11, 2014 at 10:20 am

          Thanks, DGI.

          Yes, I agree 2008 would have been a terrible year to front-load but 2009 would have been a great year for it! Since you can’t predict what the market is going to do in any given year, it makes sense to pick the method that has been shown to perform better over the long run (which is the lump-sum method).

  2. February 5, 2014 at 10:43 am

    I think it’s a great idea, brotha. Did the same thing for 3 years straight (diverted the max allowed at 90%) to scoop up as much as I could early on in case something changed in the future. Like, our company nixing the match (we had 100% matching of 100% you put in to the legal limit – it was wild!) or before I either left or got laid off. Which, as timing would have it, ended up being on the same day! I went to put in my two weeks notice and I got laid off before I could mutter the words!

    So a great idea if you can swing it, in my opinion. Especially knowing the path you’re setting up for yourself.

    • The Mad Fientist
      February 5, 2014 at 11:12 am

      Nice! It’s awesome to hear a real-life story of front-loading paying off in such a big way. I imagine you would have been really kicking yourself had you left any of that 100% match on the table when you quit/got laid off.

      My current employer offered a 100% match for the first $3K, so I maxed that out immediately, but sadly now I only get a 5% contribution (which is still pretty good but looks really stingy compared to your 100% match).

  3. February 5, 2014 at 11:07 am

    I wish I would have front-loaded more, but didn’t do it because I was lazy about cash flow management. I wanted a steady paycheck instead of tiny ones the first months of the year and big ones later. I also figured it might screw up my withholdings toward the end of the year and the employer would over-withhold, meaning the government gets a free loan for six months or so. Perhaps that would have been counteracted by not having anything withheld the first few months of the year.

    I did miss out on $10k of tax deferral in 2013 when my job suddenly ended and I didn’t get a chance to max out my 401k and 457. That kind of sucks knowing I lost out on potentially $3000-4000 of tax liability that I wouldn’t otherwise pay ever. Or at least not for a few decades.

    Oh well, lessons learned if I ever return to work full time, right? :)

    • The Mad Fientist
      February 5, 2014 at 11:25 am

      Yeah, I was interested in seeing how the withholdings would adjust after updating my contributions. Based on my most recent pay stub, it looks like they are computing things intelligently so hopefully they’ll do a good job adjusting again once I stop my contributions.

      I wouldn’t beat yourself up too hard over the $3K-$4K…it looks like everything turned out okay for you in the end :)

      • February 5, 2014 at 3:47 pm

        Sure it’s all fine and dandy but $3k is like 1 month’s living expenses! :)

        Hmmm, maybe I should max out my $11k of IRA’s for Mrs. Root of Good and myself. That would eat up most cash on hand or I could sell $11k in taxable accounts. Maybe I can tax loss harvest some of the $11k from taxable AND get an $11k deduction for contributing to an IRA. That’s like a double middle finger to Uncle Sam, right? Bwahahahaha

        • The Mad Fientist
          February 5, 2014 at 9:32 pm

          Haha, whatever you decide to do, I want to see a post about it and the image you use for the post better contain a two-finger salute!

          • February 6, 2014 at 9:46 am

            My last post on “paying $150 taxes on $150k income” features a nice portrait of a duck’s ass sticking up out of the water. I’ll have to step it up to some dual middle fingers on my next tax-related post. :)

  4. February 5, 2014 at 11:33 am

    Man, where were you when I was still working and had things like 401Ks? :)

    Great strategy.

    And if you think this has your HR dept wondering about you, just wait till you quit.

    “No. No problem. It has been great working here. But you know I just turned 32 and that’s already well past my full retirement age…”

    • The Mad Fientist
      February 5, 2014 at 7:20 pm

      Based on how long you’ve been the king of early retirement for, I imagine I was probably still in middle school :)

      Haha, I didn’t even think about talking to HR about leaving. I’ll likely just say I’m moving on to better things to avoid an awkward conversation.

      By the way, thank you for letting me bounce some of these ideas off of you before publishing the post. I had thought about mentioning your assistance in the post but since you ended your last email with, “If I turn out to be wrong, I’ll visit you in jail”, I didn’t want to scare anyone away!

      • February 5, 2014 at 11:35 pm

        good move.

        there are only so many people I can visit in jail.

  5. February 5, 2014 at 11:49 am

    This is a great strategy – one I had been contemplating for a while and I think I will go ahead and start. My employer contribution IS dependent on mine, so I will front load the majority and then just do 6% for the remainder of the year.

    • The Mad Fientist
      February 5, 2014 at 7:22 pm

      Rememberer to leave a little wiggle room for the inevitable raises a smart guy like yourself is bound to get over the course of the year!

  6. TJ Schimmel
    February 5, 2014 at 1:07 pm

    I just fell into this strategy because last year i increased my contribution to 50% for my last 2 pay periods in 2013 in order to reach my maximum allowable contribution for the year, and just left it at this rate. I just got a reply from HR this morning that my company will only match what I put in, but they have a “true up” policy in the plan, where they review your contribution for the past year, and will make the full match by March 15th. I’m not sure if the benefits of front loading everything early will out weigh not getting the rest of my 2% match until March 15th of the following year.

    • The Mad Fientist
      February 5, 2014 at 8:36 pm

      Yeah, you can front-load a true-up policy but that is disappointing you have to wait longer to receive the match. You should definitely run some numbers to make sure front-loading doesn’t make you worse off.

      • February 8, 2014 at 10:03 pm

        You can actually wait lonelier than March 15th as the company can file an extension and delay their contribution until September. My employer does than as standard practice for their taxes thus delaying their 15% contribution to the 401k

        • The Mad Fientist
          February 11, 2014 at 10:21 am

          Oh man, that’s even worse!

  7. Dan
    February 5, 2014 at 1:15 pm

    Great article. Being the young investor that I am, I’d love to use this strategy. How do you handle the tiny paychecks for the first few months? Use your savings until you get over the hump and replenish it later in the year? Thanks, Dan

    • The Mad Fientist
      February 5, 2014 at 8:48 pm

      Great question, Dan. Right now, I’m actually sitting on too much cash so I’ll be living off of that while I front-load my retirement accounts. If I didn’t have cash set aside though, I’d probably live off of my wages and then funnel everything that’s left over into my retirement accounts (so rather than invest some in a taxable account and some in a tax-advantaged account, I’d spend the first part of the year maxing out my tax-advantaged accounts and then start focusing on my taxable accounts later).

      If you are just getting started though, you’ll want to make sure you’re not spreading yourself too thin so you may want to wait until you have accessible money in other places to fall back on if you need to.

      Thanks for the question!

  8. Rob
    February 5, 2014 at 1:20 pm

    I “front-load” mine and my wife’s IRA (when I have the money). If I put the max in at the beginning of the year I get up to 15-months extra growth (as opposed to waiting until April 15th of the following year)

    • The Mad Fientist
      February 5, 2014 at 8:51 pm

      Great point, Rob. Front-loading your IRA is an excellent idea for the exact reason you mentioned; an extra 15 months in the market could make a huge difference!

  9. Jeff
    February 5, 2014 at 1:28 pm

    Timely article! My wife and I are both doing this right now as well. You should have seen the look on my HR contact’s face when she saw how excited I was to draw a zero dollar paycheck (I also max out ESPP, so I end up taking home virtually zero for a few months with all of my deductions). I also have the advantage of being able to put the money into a self-directed 401K (I feel like I’m one of 3 people in my company that take advantage of this option). I can put the money into a fine selection of fee free traded Vanguard ETFs. I’m also tempted to extend my jump off point a few months into next year solely to front load. I think it’s a great strategy!

    • The Mad Fientist
      February 5, 2014 at 9:00 pm

      Haha, I bet she’s never seen someone excited about having no take-home pay.

      I just spoke to an HR woman yesterday because I was trying to get into our 457(b) plan and I could hear the confusion in her voice when she saw how much I was already contributing to my retirement accounts. She was probably thinking, “Why does this 30-something want another retirement account when he’s already contributing so much money to the ones he’s already got?!”

      If you’re confusing your HR department, you’re probably on the right track!

      • Nick
        February 11, 2014 at 9:28 am

        Great post as usual. Where you able to get into the 457 plan? Hope you’re doing well.

        • The Mad Fientist
          February 11, 2014 at 10:38 am

          Hey, good to hear from you again, Nick!

          Sadly, I wasn’t able to get into the 457 plan because my salary doesn’t exceed the minimum threshold. I was really hoping to get another $17,500 of tax-free savings but the HR department shot me down :(

          • Nick
            February 11, 2014 at 4:55 pm

            Darn! Well, maybe the IRA will work for you. Even if you don’t have enough income left, you could still be okay as long as your wife has enough income in 2014 via the spousal IRA rule. Hope that works for you! Good hearing from you!

          • The Mad Fientist
            February 11, 2014 at 8:22 pm

            I’ll have plenty of income for an IRA but for some reason, my employer only allows employees who earned over 125% of the Social Security tax wage base during the previous year to contribute to a 457(b) plan. Have you heard of this before, Nick?

          • Nick
            February 11, 2014 at 10:20 pm

            I have not come across that rule before. Interesting. Getting excited for retirement?!

          • The Mad Fientist
            February 12, 2014 at 9:33 am

            I’ll probably try out semiretirement for a while to smooth the transition a bit but to be honest, I’m so busy right now with finishing my master’s thesis, getting the house ready to sell, working, and doing Mad Fientist things that all of these big impending changes don’t seem real yet.

            Once I get the bulk of my thesis done though, I think I’ll then start getting a lot more exciting about everything.

            Great hearing from you again and I hope you’ve been doing well!

  10. Alexis
    February 5, 2014 at 3:41 pm

    I absolutely front load my contributions with my bonus in January. It works out really well because it actually makes my cash flow more steady. Although, stocks dropped a couple percent right after I contributed, and that kind of sucked. Oh well, it all balances out.

    • The Mad Fientist
      February 5, 2014 at 9:12 pm

      That’s cool front-loading actually helps smooth out your cash flows. That’s definitely not the case for most people!

      Don’t worry about the drop; drops are natural but luckily increases are more natural over the long run!

  11. February 5, 2014 at 7:10 pm

    I scheduled ours to front load a bit this year but not too extremely as I wanted them to finish funding in September or October. Actually, thanks to a pretty high income month we’re actually already 25% of the way to maxing them out.

    • The Mad Fientist
      February 5, 2014 at 9:20 pm

      What’s happening in September or October, Mrs. PoP? Are you making sure you have a lot of cash on hand so that you can go wild in New Orleans? ;)

      • February 6, 2014 at 2:22 pm

        A mix of reasons, really.

        On my end, I got a raise that by not changing the percentage of withholding adjusted the fill-up date to a few months earlier. And since our expensive months fall at the end of the year (property taxes for multiple properties and insurance and other annual rental expenses), it seemed like an easy way to ensure plenty of extra cash flow in those months for those purposes.

        For Mr PoP, we changed his more intentionally to reflect more of a “worst case” income scenario. Though he has outperformed his peers the last few years, the target income for his position is actually a good deal lower than his earnings. So we adjusted his withholding so that even if he only earns target he will still max out. (Changes to his percentage of withholding can take a couple of months to go into effect, so it’s not something that we can do easily – especially when he often only has about 1 month of lead time in being able to estimate his next paycheck.)

        Not sure if New Orleans is going to happen this year… there’s a chance we might have to go to Guatemala for a wedding then, but we don’t know yet since the dude hasn’t yet proposed!

        • The Mad Fientist
          February 7, 2014 at 1:07 pm

          Congrats on the raise!

          Hopefully the wedding guy drags his feet a bit more so you can make it to FinCon and then go to the wedding afterwards. If memory serves me, I believe you promised me a beer so you may have to come to New Orleans no matter what :)

  12. First Timeinist
    February 5, 2014 at 8:47 pm

    This is such a great idea. Alternatively, I only worked a tiny part of last year, but invested nearly every dollar of it into an IRA. (Made around 7k, maxed the IRA) This means a full year more of tax sheltered income for what amounted to 2 months of work. Not applicable to most, sure, but I’m sure I’m not the only one who has encountered that situation!

    • The Mad Fientist
      February 5, 2014 at 10:00 pm

      Haha, I just got the “Timeinist” part of your name (it took me a lot longer than it should have)! Very nice!

      • First Timeinist
        February 5, 2014 at 11:43 pm

        In retrospect, probably should have been First Timentist. But didn’t roll of the mental tongue as well. Found your blog a few weeks ago and have been loving it so far! Been researching (and implementing 70% savings) FI and ER for the past 4 months, since I got my first job out of college. Really loving the movement. But sometimes I get super paranoid that you, MMM, jlcollinsnh, and Vanguard are all in cahoots!

        • The Mad Fientist
          February 7, 2014 at 1:08 pm

          Glad you’ve been enjoying the blog so far!

          That’s great you are able to hit a 70% savings rate right out of college. You are going to be financially independent in no time.

          Haha, I can promise that none of us are in cahoots with Vanguard, although if you know of a way that we could get in with them, definitely let me know because it’d be nice to get a few bucks for sending all of these people their way, haha.

  13. Garrett
    February 6, 2014 at 7:07 am

    This is something that I’ve been thinking about a lot recently. Right now I’m saving for the down payment on a house, so I’ve got my 401(k) set to get the 5% match from my employer. After that, I want to bump it up significantly to try and front-load as much as possible.

    Unfortunately, I have very irregular income. Paychecks can vary as much as $100-250, depending on how much overtime I work. My work only allows me to change my contribution % at 4 set times per year (each quarter), so I really don’t know how I’m going to set it up to reach $17,500 without going over.

    What happens if I set it too high and go over $17,500? Is my employer required to just stop paying into it, or will they overpay and trigger penalties? I need to talk to my HR person.

    • February 6, 2014 at 1:01 pm

      My company’s system lets me check a box that says “stop contributing once you hit the maximum allowed.” I check that box even though I’m not able to fully contribute yet. Check if yours has that, and if not, HR should be able to help you.

    • The Mad Fientist
      February 7, 2014 at 1:10 pm

      Yeah, just talk to your HR department and I’m sure they’d be able to help you. If it looks like it will be too much hassle, I probably wouldn’t worry about it and would instead focus my attention elsewhere.

  14. February 6, 2014 at 9:07 am

    Great points and something I hadn’t really considered doing. My company will match as long as I put 6% throughout the year, but as you noted there is a way to still frontload quite a bit, and still get the match. Our contributions have to be made as whole percentages of salary though, so I have to be careful not to end up under-contributing if I go this route, or accidentally leaving money on the table.

    • The Mad Fientist
      February 7, 2014 at 1:14 pm

      Yeah, you definitely don’t want to leave any money on the table!

  15. February 6, 2014 at 1:00 pm

    My company only matches up to 4.5% as long as I have a contribution of 6%. Front loading would make me miss out on this contribution! The only thing is that my industry (and company specifically) seems to be in a very tenuous state, so I’d hate to get laid off and know that I left money on the table. Granted, if I was laid off, not sure if 401k contributions would be on the forefront of my mind.. might be more worried about interviews!

    • The Mad Fientist
      February 7, 2014 at 1:23 pm

      You could front-load but you’d just have to make sure you leave enough so that you can contribute at least 6% for the rest of the year.

      Definitely don’t front-load though if you think you’ll need the cash if you get laid off!

  16. February 6, 2014 at 1:22 pm

    Front loading was one of the keys to our savings success. Every January and February we use to divert entire checks to our 457 and 403b accounts. Then, we would max out our accounts over the following 10 months. I love front loading because it allows you to maximize savings through aggressive tax avoidance. It’s always nice to see most of your salary ending up on your side of the ledger.

    These days it’s 100% front loading 100% of the time. Anytime we work we shovel our salaries to the following accounts: 457, 403b, IRA, HSA and our son’s ESA. Front loading is awesome because it is a “pay yourself first” method to the extreme. PYFX!

    Mad Fientist, I hope you’re feeling better after your surgery and good luck on that thesis.

    Ed

    • The Mad Fientist
      February 7, 2014 at 1:28 pm

      Nice to hear from you again, Ed!

      “It’s always nice to see most of your salary ending up on your side of the ledger.” – Couldn’t agree more. Seeing all of your money go toward your savings provides such a nice psychological boost to start the year and makes you want to save even more throughout the year.

      Haha, PYFX…I need to get a t-shirt with that on the front and then a middle finger to Uncle Sam on the back.

      I am feeling great after the surgery, thanks! I actually felt completely back to normal 4 weeks afterwards and except for a tiny scare (I collided with someone while playing ice hockey and had some weird swelling that made me think my intestines were popping out of my stomach), I’ve been completely back to normal for some time now.

      My thesis, on the otherhand :( I have to have a polished draft finished in less than a month and I have a LOT of work still to do. It’s not going to be a fun month.

  17. Joe
    February 7, 2014 at 11:40 am

    Quite a while ago, I had a conversation with a coworker who told me he had invested too much too fast and I didn’t know what he meant, but he pointed out that he maxed out before the end of the year and thus didn’t get the company match for the last month or so. I realized I had done that at least once too. At any rate, keep that in mind when front-loading, make sure you don’t max out before the end of the year in order to get the full company max.

    • The Mad Fientist
      February 7, 2014 at 1:29 pm

      Yeah, I mentioned that in the Employer Match section in the article. The last thing you want to do is leave free employer money on the table!

  18. CT
    February 7, 2014 at 11:12 pm

    I would agree in part with front loading lump sums. I think that it would depend on how much you are planning to save each year and how old you are. For instance if you are a little older and have a sizable portfolio, you may not have enough years between retirement and social security to convert to Roth IRA. Also include if you are saving after tax money beyond pre tax contributions. Because you can front load that money too and also have access to money with low or no tax implications. Just thoughts, not for or against. Frankly, if you invest any amount at the right time you will make more money! Just knowing that time is key. DCA can smooth out your average cost basis if the market takes a turn for the worst.

    • The Mad Fientist
      February 11, 2014 at 10:03 am

      If you know how to time the market in a consistent manner, none of this stuff matters because you’re already ridiculously rich! Sadly, market timing is a loser’s game so you’re better off just investing your money as soon as it becomes available. While I agree DCA will smooth out your averages cost basis, it is still a suboptimal strategy for lump sums (see the article I linked to in the post for some reasons why).

  19. Elizabeth
    February 8, 2014 at 1:22 pm

    Sounds like you have a very lenient HR policy. I would love to do this so it would be one less thing to think about. Plus, it allows you to get your tax sheltering in just in case something happens throughout the year.

    My husband’s max % is already set at 15%, which we will have to pull back later in the year to make sure he still gets the match. Luckily, the 15% still allows him to max out the 401k @ $17,500, but I feel bad for others that might not make as much…they don’t even have that option to reach $17,500 since the employer max allows 15% per paycheck.

    For me, I took your advice and decided to go from 21% to 50% (my employer’s max) for the next couple months, rather than spreading it out all year. Unfortunately, as others mentioned, I still have to contribute to get my employer’s generous full on 5%, so I will ease up shortly to ensure my Dec 31 paycheck is the one that maxes it out.

    I wish we could do IRA’s already for 2014, but I need to wait and see how a few scenarios unravel this year to determine if only I can do a traditional non-deductible IRA or if we both can do Roth IRA’s. Otherwise, we get into messy re-characterization issues like the one I am dealing with for 2013 taxes.

    • The Mad Fientist
      February 11, 2014 at 10:05 am

      That’s crazy your husband’s employer restricts some people from maxing out their 401(k)s. I wonder what the reasoning is behind the 15% max?

      I feel your pain with the IRAs. I’d love to be able to max out my 2014 IRA now too but I’m not sure how much income I’ll have so I’ll just have to wait, sadly.

  20. Reepekg
    February 9, 2014 at 11:35 am

    I definitely do this to optimize returns. It is a huge PITA because my employer matches 70% of my contribution up to 10% of salary per pay period… so I have to calculate that distributed across the year to get it, and then front load the difference. And of course you can’t front load $x, you have to calculate it as a percentage of pay up to a max of 25% of pay per period. Lame. I would love a $0 paycheck.

    I also buy the max amount of I bonds and max the IRAs in January.

    • The Mad Fientist
      February 11, 2014 at 10:09 am

      Haha, only in the FI community would you see, “I would love a $0 paycheck” :)

  21. February 9, 2014 at 1:40 pm

    Thanks for another great article! I hadn’t heard of this concept until I read this but I’m pretty new to the FI world. I understand the principle of getting into the market ASAP so this makes perfect sense and aligns with our strategy. I’m not sure we have the emergency funds right now to do this but I did adjust my other savings accounts to get enough to max our Roth IRA now instead of later so I was able to put it into use in a different area!

    Once I’ve got a little more flexibility in our living expenses I’m going to try this out on our 401k. We get a 4% match which I’m grateful for but I’ll make sure to check with our HR first. Thanks again!

    • The Mad Fientist
      February 11, 2014 at 10:10 am

      My pleasure, Refinerr! Thanks for stopping by!

  22. February 10, 2014 at 3:46 am

    I always front-loaded my 401k contributions just to have the $ in the market longer. The only reason I could think of for not doing it was that I got pay raises in September, and would have had a larger match overall if I could back-load it.

    • The Mad Fientist
      February 11, 2014 at 10:24 am

      Hey Jeremy, great point about mid-year raises. That is definitely another thing people should consider before deciding to front-load.

  23. February 10, 2014 at 12:56 pm

    Hooray for front-loading!! Keep the money in the market longer, enjoy bigger gains, and quit that day job. :-)

    • The Mad Fientist
      February 11, 2014 at 10:26 am

      Almost there, Paula! By the time you see me in New Orleans, that whole “day job” problem should be a thing of the past!

  24. Simon Kenton
    February 15, 2014 at 7:39 pm

    I used to advise a former girlfriend on her finances and taxes – I got her to doing this. I pointed out that if she hit the max by September and maxed out the extortion for social security at roughly the same time, the final paychecks of the year would go up to pay for Christmas. Now I didn’t really “approve” of the hyper-materialistic Christmases, but my approval was not very important here, and getting her to hit the maximum in her 401(k) as early as allowed was as much of a win as I could hope for.

    • The Mad Fientist
      February 17, 2014 at 9:16 am

      Advising your significant other on finances could be a messy/dangerous business (hopefully that isn’t the reason she’s now your former girlfriend) but it’s good to hear you secured at least one big win for her!

  25. Lars
    February 16, 2014 at 12:14 am

    First I should that I enjoy reading your website and all your pod casts. Thanks for putting these together.

    To make a long story short, I’ve been at my company for 8 years and I’m debating about leaving it in May due to some stock vesting. I’m in a position that I can probably take the rest of the year off and my wife is making a good salary at her current job (and she really likes her job). I’m kicking around the idea about maxing out my 401k between now and May. I have a bonus coming in March, which may make it easy to get there.

    I’m just wondering if any readers have done this before and then left. My only concern is landing a job in Sept/Oct with a match and I’ll miss out on that. Is it possible to do after-tax contributions to a 401k (in this case) & still get a match, since I already hit the max contribution limit by the IRS? If not, perhaps it will make it easier to wait till Jan to find replacement job. Any experience here? Thanks!

    • Lars
      February 16, 2014 at 12:15 am

      “First I should say” – can’t believe I made a typo in my first comment. Wish blogs had an edit comment feature ugh! Thanks again for putting together a great website!

      • The Mad Fientist
        February 17, 2014 at 10:59 am

        Yeah, I’m sorry you can’t make edits. There are plugins that provide comment-editing functionality but I haven’t installed one because I don’t want to slow my site down (sometimes plugins cause performance issues).

        If you ever want to edit a comment in the future, just shoot me an email and I’ll make an update behind the scenes.

    • The Mad Fientist
      February 17, 2014 at 10:53 am

      My pleasure, Lars! Glad you’ve been enjoying the site.

      If I were you, I’d probably front-load the 401(k) but I would leave a bit of padding in order to take advantage of some employer match, if available, in October, November, and December.

      Whatever you decided to do, I wouldn’t try to exceed the 401(k) limits or put off finding another job just to maximize your 401(k) contributions and employer match. A full paycheck is much more valuable than a x% employer 401(k) match!

  26. February 19, 2014 at 1:45 am

    Slightly different strategy;

    Retired at 37 (family if 4)

    Wished I had not fully maxed out my 401K during our working years. I should have grabbed my company match and moved on. Saved those dollars in an equity account and purchased a few rental properties. I now am stuck with a 72(t) or taking the 10% penalty to access my funds.

    • The Mad Fientist
      February 19, 2014 at 12:54 pm

      Will, you should look into the Roth IRA conversion ladder strategy because it is much better than 72(t) and will allow you to access your retirement account money without being penalized. Check out these two articles for more information:

      - Retire Even Earlier
      - Early Retirement Withdrawal Strategies and Roth Conversion Ladders

      • February 19, 2014 at 1:23 pm

        Thanks for the info! This will allow for a little bit of cash to trickle out slowly. Any amount helps.

        • The Mad Fientist
          February 19, 2014 at 3:40 pm

          Actually, you could take as much out as you want with this method. The conversion is taxed as normal income so the more you convert, the more you’d have to pay in taxes but you could potentially convert the entire balance in one year and then withdraw the converted amount from your Roth IRA, penalty free, five years later.

          I plan to stretch out my conversions over my entire early retirement though so that I pay as little tax as possible.

  27. February 20, 2014 at 3:55 pm

    employer matched contributions, share incentives, and share saves should be a total no-brainer. where I worked before, there was an option to buy shares (at a small discount) every month – but they key was that it was out of pre-tax income therefore at the time it was a 40% discount on the shares. totally free money!

    to my shame, I actually didn’t do this for the first 3 years I worked there because I stupidly thought I’d prefer the “cash in my pocket”. doh! so I missed out on free money, a “pay yourself first” savings, and I spent all the cash anyway.

    older and wiser now – if there’s free money going grab it!

    • The Mad Fientist
      February 21, 2014 at 8:14 pm

      I’m sure we all have similar stories from our youth. That’s why I’m so jealous of the college-age readers out there. Hopefully they read this stuff and avoid most of the mistakes we made.

  28. February 26, 2014 at 4:21 pm

    Very interesting concept! The idea had never occurred to me to try something like this, but it makes perfect sense!

    • Lifehacker
      February 28, 2014 at 12:06 am

      So my question is, if I run my own business (C-corp), what kind of retirement account makes the most sense given that I can control all the variables?

      Funding a Roth IRA is a no-brainer. As is an HSA (and I get the sense that there’s a way to avoid FICA taxes with that, correct?). The question is where to go from there… SEP, Individual 401k?

      The problem is I pay myself a fairly modest wage so I loathe essentially taxing myself an extra 15% in order to put more money in. Thoughts?

      • The Mad Fientist
        February 28, 2014 at 10:30 pm

        I’ve actually been doing some research about this sort of stuff but I’m still far from an expert on the subject.

        Owning a corporation allows for a lot of tax trickery, so you have a great opportunity to lower your taxes, but sadly I don’t know enough to help you (yet).

        A book called Lower Your Taxes Big Time talks a lot about using corporate entities to reduce your personal income taxes so you may want to check that out.

        • Lifehacker
          March 1, 2014 at 2:20 am

          Agreed. My father is a Corporate Tax attorney, so I’ve been fortunate in that way. I’ve been employing a similar strategy for many years. Very appropriate for many people — LOTS of benefits.

          If you come across any blogs that deal with self-employed approaches to 401k’s I’d appreciate knowing. I just started learning about Roth 401k’s – which seem particularly appealing. I’m thinking about tying a 401k with my C-corp. But this area (401ks/SEP/SIMPLE) is pretty new to me.

    • The Mad Fientist
      February 28, 2014 at 10:10 am

      Thanks a lot. Glad you enjoyed the post!

  29. Jon
    March 3, 2014 at 9:22 am

    Great article and plan, Mad FI!
    I too fall victim to true-up antics…but a positive unintended consequence of this move ( I load 50 % early & often ) is that I get “used to” living on @ half of my income until I hit the 17.5k limit. I try to keep it going for the remainder of the year…with a slip up here and there. :)

    • Lifehacker
      March 3, 2014 at 8:24 pm

      Jon, you’re living on 50% of income?

      • Jon
        March 3, 2014 at 8:33 pm

        Lifehacker:

        I try my best live on half of my pay…doesn’t always happen but I want to become FI ASAP…

        • Lifehacker
          March 3, 2014 at 8:44 pm

          Amen to that. I try to do the same. Mind sharing any strategies you’ve found that helps? Love to pick the brains of other likeminded.

          • Jon
            March 3, 2014 at 9:30 pm

            Lifehacker:

            The usual LBYM stuff…modest house, no fancy threads ( Target stuff really is as good or better than Polo et. al ). I also spend my paycheck as fast as it comes in…..on a mortgage payment ( or two ), throw any “extra” into my Vanguard account…pre-pay whatever I can. For me, I’ve noticed idle money is the devil’s currency. :)

    • The Mad Fientist
      March 3, 2014 at 8:27 pm

      Thanks, Jon! Getting used to living on less is definitely a good side effect of this strategy.

      • Lifehacker
        March 4, 2014 at 1:57 am

        Good line on the devil’s currency. :) Thanks for sharing.

  30. Rob
    March 3, 2014 at 4:43 pm

    Not sure if its ok to put links in comments. But BankRate had an article along these lines. Fund an IRA early to grow a bigger account. http://www.bankrate.com/finance/retirement/fund-ira-early-to-grow-bigger-account-1.aspx?ic_id=Top_Financial%20News%20Center_link_3

    • The Mad Fientist
      March 3, 2014 at 8:38 pm

      Hey Rob, relevant links are always welcome.

      I liked the following paragraph in that article:

      “Assuming an 8 percent annual rate of return, a 25-year-old investor who contributes $5,500 a year to her IRA at the beginning of each year would have $113,985 more in earnings after 40 years than her peers who wait until the following spring to contribute.”

      Sounds good to me!

  31. John
    March 16, 2014 at 6:03 pm

    I might be doing something wrong here, so help me out. My employer matches up to 6% if you put 6% in, so with front loading I’d still need to maintain that somehow.

    If I contribute my entire paycheck ($5500 gross, monthly), this paycheck calculator (pretty accurate through work’s web site) says I’d still owe $581 in taxes. If I do that for Jan and Feb, I need to put $3500 in for March so I can put the $330 in April-December and still get the full match. March’s paycheck would have been $1230, but the taxes from Jan/Feb take it to $68, right? The other months I net $3629 with minimum match. Total 401k: $21,430. Total in my pocket: $32,729.

    If I DCA with an equal amount every month, I get the full employer match and the same total 401k: $21,430. However, I’m calculating my total net higher, at $34,236 (netting $2853/mo).

    Am I missing something with the taxes in the first scenario?

    • The Mad Fientist
      March 17, 2014 at 8:49 am

      Hi John, if you contribute your entire paycheck to your 401(k), the only taxes you should have to pay during those months would be FICA taxes at 7.65%. That would mean you would only have to pay $420.75 for the first two months.

      It looks like the calculated taxes are a bit off for the other months as well because you should pay the same amount in taxes whether you front-load or not.

  32. CD
    April 12, 2014 at 10:47 am

    Well, I have a real knack for buying high. It’s seriously annoying me. I decided to stop dollar cost averaging a large chunk of money because I was sick of it sitting in cash, and I dumped it all in on what I know see was the second highest price of the year. (Not the most recent April surge but back in Feb). I also invest once a month from my paycheck and I swear it’s always investing on a day right before a decent drop. I am not trying to time the market but clearly I have terrible luck with timing. I’m probably the only person showing negative return right now (in my taxable account) after all the gains from 2013. Do you have any words of encouragement for me so I can stop feeling like such a moron? I know the overall trend is up and I have no intention of pulling money out any time soon, but still. Moron.

    • The Mad Fientist
      April 14, 2014 at 8:56 pm

      Hey CD, you’re not a moron (you’re a Mad Fientist reader, after all :) ). If anyone could actually time the market they would be wealthy beyond belief so that fact that you can’t shouldn’t be a cause for concern. Market timing is a loser’s game so putting your money to work immediately is a better strategy over the long run, even if you feel like you’ve taken a beating in the short term.

      Check out my tax-loss harvesting article to see how you could potentially make some lemonade from you lemons.

  33. May 20, 2014 at 12:44 pm

    I was reading Gunieau Pig#2 and had to back track my way through apparently I skimmed it like an 8th grade required reading assignment.

    My thoughts on front loading are while I agree that if you have 120K sitting there don’t dollar cost avg the money over the year, I think that’s entirely fair although I’d prob be scared to put 120K in and rather split it up into 2 investments of 60k for cash safety and the possibility that the one time I invest the market tanks like the great depression.

    My other thought is most people can’t contribute such a large amount at the beginning of the year, myself included. If I were making 48K/4k month to keep it simple, that means I would be able to contribute 75% of this or 3K month in investments(correct me if i’m wrong please) with 1K left to be taxed, which is quite a small amount considering that taxes and insurance and travel have not been taken out and of course your HSA.

    Am I totally missing something on my numbers or is this really hard to do?

    • The Mad Fientist
      May 20, 2014 at 5:50 pm

      There is no set amount that you need to contribute so just contribute what you are able to. If contributing $3k on a $4k/month salary doesn’t leave you with enough money to live on, only contribute $2k or something per month instead. The Guinea Pig numbers are tailored for the GP’s income and spending levels so you’d want to adjust things for other scenarios. This article is not about how much you should contribute but what type of account it makes sense to invest in first.

  34. Maverick
    May 20, 2014 at 3:45 pm

    My employer’s 401K only allows contributions up to a maximum of 25% before tax. :(

    • The Mad Fientist
      May 20, 2014 at 5:51 pm

      Bummer. You can still do it but it will just take you a bit longer, I guess.

  35. Shashi
    May 27, 2014 at 5:47 pm

    Thanks to you, my wife and I have started maximizing and front-loading our 401k. As you suggested, everyone should check their company policy on employee match. In our case, we need to make a minimum contribution of 6% every month to get the max. company match.

    Thanks a ton!

    • The Mad Fientist
      May 28, 2014 at 8:50 am

      My pleasure, Shashi!

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