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January 5th, 2009 at 10:11 am

Double post today, but something's come up that requires my attention and perhaps your assistance.

Long story short, our contract got bought out by another contractor. Although nothing is for certain, the new contractor said that it's only a management change, and they plan to keep all of us regular employees.

In any case, I've checked the 401(k) plan for the new contractor, and they have a performance-based match (which appears to be around $0.50 to $.65 per dollar dollar), but with a match limit of "only" up to 6% of gross.

Now, I realize this is fairly typical, but my current employer has NO LIMIT on their employer match (at $0.28 per dollar).

So, here's what I am thinking of doing (and perhaps this is the part where I once again live up to my name). I'm thinking of giving 100% of my paycheck for the next two months to my current 401(k). Two months because that's how long the current contractor has before their contract expires. That way, I can take advantage of as much of their employer match as I can, while I still can. After that, I'll ease up considerably to both replenish the EF, as well as adjust to the new contractor's terms.

My EF is more than enough to cover expenses for the next two months, so I don't think this is completely insane. Just the same, I would have to be super-careful because I would be living on emergency savings alone. Then again, if it turns out to be undoable, then I'll just dial the contributions back down.

Soooo, what do you guys think about this idea? Too crazy, or just crazy enough that it might work? (Actually, I've already switched it over to 100%, BUT if someone thinks this is a really bad idea, I can always switch it back.)

21 Responses to “401(k)”

  1. gamecock43 Says:

    So you were previously contributing more than 6% of your income I assume? You will see as decline in your contribution in future years if you continue to contribute as you were? I'm just trying to get a handle on how much money you are losing as a result of this new contract. But that aside, contributing money to your 401k is never bad, though you risk losing your paychecks if the stock market takes another hit.

  2. Koppur Says:

    I think it is crazy, but in a good way. If you can live for the next 2 months with no paycheck, I say go for it.

  3. Broken Arrow Says:

    Yes, I have to contribute more than 6% in order to max out my 401(k) to the IRS limits. Up until now, that was a no-brainer since my current employer matches every cent you put in there.

    However, the new contractor has a much more conventional setup, and that's why I was thinking about contributing my entire paycheck. That way, I take as much as I can from my current employer's matching before having to adjust to the new employer's matching scheme.

    Chances are really good that I will not be maxing my 401(k) this year, due to the new employer's matching limits. Given my current predicament hehe I mean tax bracket, I'm better off maxing the Roth after that. And if I like my new 401(k) brokerage (I don't know who it is yet), then maybe I'll come back and max it. If not, I'd like to double check my other options, such as HSA first. Not entirely sure yet. We'll have to see when I get to that point.

  4. princessperky Says:

    I think you are crazy, but as a relatively single guy in free housing? Why not try it, just avoid ruining your health for it please...go eat breakfast Smile

  5. Broken Arrow Says:

    Yes dear! Hehe.

  6. CouponAddict Says:

    Do it, nothing wrong with maxing out the retirement accounts for the year early then rebuilding savings.

    Plus this will motivate you to really deside if a purchase is worth it before you buy it since you will be using your savings to buy it.

  7. Broken Arrow Says:

    Ohhhohoho, no, I do not even want to BEGIN to think about buying stuff I don't need right now. The next two months, at least, will be strictly on the bare minmum survival mode. I may be crazy enough to do something like this, but that doesn't mean it I would not be nervous about it.

  8. merch Says:

    The only thing I would add is dollar cost averaging. If you max your 401(k) you might think about continuing the old retrement contribution into an IRA.

  9. Broken Arrow Says:

    Yeah, I normally DCA my way through the 401(k). Actually, I still plan to do so. My plan is just to spike it for the next two months, and then drop it back down into the new employer's level. Then, I'll probably only contribute 6% of their match though.

    Plus, I don't actually like my current 401(k) company. At all. I'll wait until the 2010, but yes, I plan to roll that money over to my own IRA. In fact, I plan to save up a separate fund this year to do a conversion (within my tax bracket) when the time comes to do the rollover.

  10. Sunshine Suz Says:

    And he's BACK IN THE CLOSET!!!!!!!

    You can do it if anybody can!

  11. Broken Arrow Says:

    But only for two months!

    (Speaking of which, I need to clean my closet. It's been really cluttered lately.)

  12. gruntina Says:

    I would check with HR or your Payroll department if they are separate to see if you can contribute the full 100%. I am assuming you do not have insurance or other benefits that has payments taken out of your paycheck.

  13. Broken Arrow Says:

    Oh yeah, that's a good point! I'll call tomorrow.

  14. scfr Says:

    Hey, if you think you can swing it, why not go for it? I'm all for crazy ideas in the SHORT term when there is logic behind it.

    Just one suggestion: Make sure you like the funds in the new employer's (contractor's?) plan. Would be a shame for you to sock away 100% of your income for the next 2 months only to be forced to put it in the "Squeaky Wheel USAutomakers Fund" when you have to transfer your funds to the new company's plan.

  15. Diolla Says:

    Were you aware that a change of ownership means you can roll your current 401(k) into an IRA, when the new people takeover it is like you left one job and got another so you can roll the whole thing over into a Traditional IRA. That way you will have more control over your investments than if you just rolled it into your new people's plan.

  16. Broken Arrow Says:

    Yes indeedy!

    In fact, I plan to do exactly that, because I don't like my current 401(k) company. Next year to be exact, after the employer match is deposited and I've saved up a little bit more to maybe do some Roth conversion.

  17. jIM_Ohio Says:

    Match of $.28 of 16500 (which is max match of $4620) because $.50 of 6% is not high enough?

    If you make 50k*.06*.5=$1500 This could go up another $500 (with $.66 match).

    If you make 100k the old 401k is just a hair better. If you make 150k the new 401k kicks the other ones butt.

  18. Broken Arrow Says:

    Yeah, I know what I wrote wasn't very clear, but my idea is to capture as much match as possible from both employers. First two months, capture all I can from the current employer. The rest of the year, capture the full match limit of the new employer (of 6% gross).

    Next year, I will only have the new employer's match to work with.

  19. thriftorama Says:

    I would do it, just be sure your company plans to continue the match during that time. When will you ever have the chance to do this again? Probably never, so if you can afford it, do it. Also, just hope the don't have a max percentage of your income that you can contribute.

    When I worked full time, I contributed 40 percent of my check until I maxed out at 15k a year. Now, as a freelancer, I put 100 percent in my IRA til I max it out.

  20. baselle Says:

    Except for the possiblity that the new owners are lying to you and will lay you off in the next two months, its a no brainer in my opinion. Go for it!

  21. Broken Arrow Says:

    Hmm, that's always possible.

    I'm hoping not though. In fact, if I really had any doubts, I would not do this.

    But I'm willing to take the risk. Heh.

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