Today we are talking about how to front-load your work 401(k) or work retirement account each year. Find out three examples of how to implement this in your own life. Stay until the end to find out mistakes to avoid.
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Hi, I’m Jessica and I love talking about financial freedom after experiencing burnout early in my pharmacist career. We talk passive income and simplifying on this channel to combat stress and burnout. If you haven’t seen my burnout story or our debt-free journey while in residency/fellowship, please click those video links below.
As many of you know, I work full-time as an Associate Professor and W2 employee of a University in addition to owning my own small business coaching, creating content and keynote speaking.
I’m going to focus on the Work 401(k) in this video. If you would like to learn how to retire early, how to contribute to a solo 401(k) as a business owner, please check out those videos linked below.
Now many of us in the United States have some type of retirement account offered by our employer. Mine is a traditional 401(k) held in the platform, Fidelity. No matter the type or the location platform, here are the steps to contribute all or a large portion of your retirement fund early in the year.
- First determine if employer matches
- If yes, determine if employer match is dependent on each paycheck or total contributed
- My situation
- 26 paychecks
- Must contribute each paycheck to get the employer match
- 3% match at 100% and 50% match up to 5% – so 4% match
- 3 Examples
- Fund within first 3 month (or 6 paychecks), then spread smaller percentage to remaining 9 months (20 paycheck)s: 35% contribution first 6 paychecks to fund the first $10-13,000 then 7-9% for rest of year
- Fund entire account within the first 3 months (6 paychecks) – contribute $3416 per paycheck for full $20,500 contribution
- Fund entire account within the first 6 months (13 paychecks) – contribute $1577 per paycheck for full $20,500 contribution
- Things to remember
- Typically, contribution is based on whole percentage point and not the total dollar amount you want to contribute
- Most companies limit the maximum contribution at 75% because part of paycheck goes to paying health insurance premiums, State Disability Insurance (SDI), Medicare/Social Security
- If your raise is completed on the calendar year but does not go into effect until February or March paychecks, the contribution calculation can be slightly off when the backpay is distributed – this happened to me when my raise went into effect mid-February and one paycheck included my backpay from January 1, 2022
Are you funding your work 401(k) early in the year? If so, comment below with your strategy please!
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