Should I contribute my 401(k) money evenly throughout the year?
CC asks:
What is the current annual maximum contribution you can make to a 401(k)? Is it $15,000? Assuming you earn $150,000 per year, is it better to put in 10% all year long? Or maybe 20% and presumably the withholding will stop when you hit the max? Just wondering if one way is better than another. Also, if I max the 401(k) can I still contribute to an IRA?
Actually, for 2008, the maximum amount you can contribute to a 401(k) is $15,500 if you are under age 50 and $20,500 if you are age 50 or older. Most people elect to have their contributions evenly withheld throughout the year (the 10% scenario you described above) but that is usually because it is simplest from a budgeting point of view.
Most employer plans allow you to "front load" your contributions, but you would need to check with your benefits or HR department to be sure. If you don't need the money to live on, front-loading can be a viable option. One note of caution: in some situations, front-loading your contributions may cause the loss of some matching dollars from your employer so check with your payroll/benefits department.
In the long run, it wouldn't make any noticeable difference either way. Front-loading the contributions might make sense for someone who is afraid of losing their job at some point during the year but still wants the opportunity to contribute the max permitted to the 401(k). If the individual in that example was not able to find another position before the end of the year, he or she might have missed an opportunity to get the full $15,500 or $20,500 contributed.
And, yes, it is possible to contribute to an IRA even after you have contributed the max permitted to a 401(k). The IRA contribution limits for 2008 are $5,000 for individuals under age 50 and $6,000 for individuals age 50 and over. If you can contribute to both the 401(k) and the IRA, that would be great.
