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Lump sum 401k contribution in January? Pros/cons.

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  • Lump sum 401k contribution in January? Pros/cons.

    I am considering contributing 19k in my 401k plan on Jan 2020. I have a profit sharing plan which is distributed quarterly, so the remaining 36k will still be DCA throughout 2020. (I also lump sum Roth every Jan, and have also started lump summing my HSA the first paycheck.)

    Are there any downsides to putting a lump sum in, from a mathematical standpoint? I guess the only thing I can think of why I should not do it is if we are still in a bull run next year, a recession may be coming? Or more likely to come at least?

    It's really just a personal decision on my part: I would rather have less take home pay for one month and have increased paychecks the rest of the year.

     

  • #2
    why not?

    the only reason i don't is b/c my match is calculated per month.

    Comment


    • #3
      Is this a solo 401k? I don't see a reason not to. It should come out ahead in the long run (though not every year). The old lump sum vs dca debate.

      Comment


      • #4


        Are there any downsides to putting a lump sum in, from a mathematical standpoint?
        Click to expand...


        one big one: you get sick/injured and have no/minimal income for the rest of the year, meaning that you overfunded.

        somewhere I read about that hassle, perhaps here via jfox or SR?

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        • #5
          Contributions must come from wages so you have to have enough wages to support the contribution in Jan

          Make sure you’re not losing match dollars if applicable.

          The market trends up so the historical math always favors investing earlier but on a Jan lump vs DCA monthly test lump sum probably loses 45% of the time.
          my radiology group is hiring, pm if you can do msk and are interested

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          • #6
            "one big one: you get sick/injured and have no/minimal income for the rest of the year, meaning that you overfunded"

            He's a radiologist...the cap is 19k... it'll get fully funded in Jan.

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            • #7




              “one big one: you get sick/injured and have no/minimal income for the rest of the year, meaning that you overfunded”

              He’s a radiologist…the cap is 19k… it’ll get fully funded in Jan.
              Click to expand...


              that would be a huge jan paycheck to max out 401k that month.

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              • #8
                Not really. Employee contributions can be close to 100% of pretax salary so anyone making $240k+ would gross $19k in January.

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                • #9
                  ok, zzz and jhwk, you guys are right, I retract the "huge" adjective, sorry I was thinking of employER side of things too.  yes, if employee contribution of 19k then 20k-ish of income in Jan would cover for hassle of over-funding.

                  guess I was factoring in the presumed tax withholding, plus presumed premium for that HSA qualified plan, plus the HSA contribution but that doesn't change the limit.  does the IRA?

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                  • #10
                    If your investing in a taxable as well then you are just getting more into your tax advantaged account before taxable.
                    In a down market you will lose but in an up market you win. The difference is probably not very much.

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                    • #11
                      This has been back tested quite a bit by various resources, including Vanguard. It seems that most of the data shows lump sum wins about 60% of the time.

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                      • #12




                        This has been back tested quite a bit by various resources, including Vanguard. It seems that most of the data shows lump sum wins about 60% of the time.
                        Click to expand...


                        Do you have a link for this? I would be interested in the trends, historically.

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                        • #13




                          If your investing in a taxable as well then you are just getting more into your tax advantaged account before taxable.
                          In a down market you will lose but in an up market you win. The difference is probably not very much.
                          Click to expand...


                          Yes, I'm doing both, but why do you say you will lose vs win in the tax-advantaged account?

                          I don't understand what you mean. Isn't that the case in any account?

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                          • #14







                            This has been back tested quite a bit by various resources, including Vanguard. It seems that most of the data shows lump sum wins about 60% of the time.
                            Click to expand…


                            Do you have a link for this? I would be interested in the trends, historically.
                            Click to expand...


                            Vanguard: DCA just means taking risk later

                             

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                            • #15
                              If the market tanks it does suck for both accounts but at least in taxable you can tax loss harvest.

                              Also it is better to have tax free gains then taxable gains.

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