Maxed out the 401k!

[spotty_dog]

With a pay period to spare...anyone else starting to measure up their progress toward end-of-year goals? We also hit a nice round figure in our investable assets thanks to the booming stock market this month. Yippee!

[moonlight]

That's great!!! Hello early retirement!!

[spotty_dog]

Fingers crossed! We really hope we're on track to retire by the time DH is 55. I just re-ran the numbers and we have a 98% chance of making it 40 years, even assuming no SS and a very conservative investment growth rate, if we keep saving at this rate for another 20 or so. W00t!

[moonlight]

That's amazing! You'll be a first retired med spouse on here! I like that!

[The White Coat Investor]

Nice work. Financial independence is the sum of many tiny correct decisions made over decades, like maxing out your 401K. It usually takes me to about September or October to max out our 401K/profit-sharing plan each year. We fund the 529s, HSA, and Backdoor Roth IRAs in January with the money saved by not putting it in the 401K the last couple of months in the year.

[spotty_dog]

We got your newsletter that mentioned front loading the accounts, and we are considering a lump sum after tax time. If we put all our discretionary funds in the 401k we would max it before June but our system now is working fine.

[SuzySunshine]

So here is a question? As long as you max out your 401 (or 403 and 457 in our case) what difference does it make when you do it in the calendar year? And can someone remind me of the advantage of a back door Roth IRA? Is there a max you can put in the back door each year? I have a sizeable IRA compared to DH because I have worked since college, his is now growing but is relatively small and they're both regular IRAs.

[spotty_dog]

So here is a question? As long as you max out your 401 (or 403 and 457 in our case) what difference does it make when you do it in the calendar year? And can someone remind me of the advantage of a back door Roth IRA? Is there a max you can put in the back door each year? I have a sizeable IRA compared to DH because I have worked since college, his is now growing but is relatively small and they're both regular IRAs.

You can transition your whole IRA, but if it's a traditional, you'll need to pay taxes on the amount you convert. It might not be worth it. Also, there's something about pro-rated conversion: if you put $5k in a new IRA, and then try to convert $5k to Roth, you will have to pay taxes on part of any traditional IRA you already own? I'm not totally clear, as we've decided not to bother for DH (we have other investing options including a high limit on our profit-sharing plan, and we can always do Roth conversion after retirement when our tax rate is hopefully lower) and I haven't gotten my act together to do a spousal one yet. Um...here's an explanation on the pro-rated thing: http://www.bogleheads.org/wiki/Backdoor_Roth_IRA

And I could forward you the newsletter on lump sum vs. intermittent investing, but I think WCI's argument was basically that you lose out on a lot of the year's growth if you don't put that year's investment in right as soon as you can.

[ladymoreta]

So, um, hypothetically speaking, what if you suck at finances and math and accidentally contributed over the maximum? What should this hypothetical person do (besides find an adviser ASAP)?...

[spotty_dog]

No worries, it happens all the time and there are procedures. Is this in an employer sponsored account, or...

[ladymoreta]

Yes, I think so. It's the 401k he gets through his work, and they match some. Our contribution went a little over, but I looked it up, and ours plus the employer match is under that limit. According to Google, we just need to withdraw it plus interest before we submit our taxes? I sent an email through our plan's website, so hopefully they'll get back to me tomorrow about how to do that.

At least that should help with the make-up taxes that I think we'll owe from not withholding enough...

[The White Coat Investor]

Yes, I think so. It's the 401k he gets through his work, and they match some. Our contribution went a little over, but I looked it up, and ours plus the employer match is under that limit. According to Google, we just need to withdraw it plus interest before we submit our taxes? I sent an email through our plan's website, so hopefully they'll get back to me tomorrow about how to do that.

At least that should help with the make-up taxes that I think we'll owe from not withholding enough...

So, um, hypothetically speaking, what if you suck at finances and math and accidentally contributed over the maximum? What should this hypothetical person do (besides find an adviser ASAP)?...

First of all, you don't suck at finances if you are not only contributing to retirement accounts, but actually overcontributed. The easiest way to deal with it is to contact your IRA/401K holder and they can show you the form to fix it. You certainly don't need to hire an adviser just for that. You might want one for other reasons, but that certainly isn't a tough DIY task.

Keep in mind the 401K $17.5K limit is just for your contributions. Contributions plus match can go up to $52K.

[Vanquisher]

First of all, you don't suck at finances if you are not only contributing to retirement accounts, but actually overcontributed. The easiest way to deal with it is to contact your IRA/401K holder and they can show you the form to fix it. You certainly don't need to hire an adviser just for that. You might want one for other reasons, but that certainly isn't a tough DIY task.

Keep in mind the 401K $17.5K limit is just for your contributions. Contributions plus match can go up to $52K.

So if contributions plus match can go up to 52K, does your portion still need to be 17.5K? Or, if your employer matches a paltry amount, can you do more, as long as there is a match and the aggregate is less than 52K?

[spotty_dog]

It depends on the plan, but generally speaking your "elective deferral" is limited to $17.5k. http://www.irs.gov/Retirement-Plans/...ibution-Limits

LM, see that link: you have until April 15 to tell the plan administrator to withdraw your excess contribution. Email to the administrator was the way to go.

[ladymoreta]

Thanks! Yes, they emailed me back to just call them. Unfortunately, I think DH will probably have to be the one to call, and you all know how hard that is to make happen!...