In the blink of an eye, my overtime income that I blogged about two days ago is gone. Rest in peace, hopefully we will meet again.
Where did it go?
I’m glad you asked.
As soon as I learned the opportunity for overtime was available, I immediately began deciding how to purpose this new found income.
And like a true personal finance nerd, the result was about the most boring thing you could possibly imagine.
My 401k.
While I’d like to pretend you didn’t see that coming, I imagine you nerds would have been just as nerdy and probably done the same nerdy thing.
Seeing that I have no idea how long this overtime option will be available to me, I want to make sure I take advantage while I can.
For now that means I’ll be throwing $1,600/month in to my 401k instead of the $600/mo I have been doing.
Since my agency matches 5% of my income each month, I have to be careful about how fast I max out my 401k.
If I hit the $18,000 limit by, let’s say August, then I would no longer be allowed to contribute to my 401k for the rest of the year (September to December). Which means, my agency wouldn’t be able to provide me a 5% match (since I’d no longer be contributing).
Or in other words, I’d lose out on about $2,000 of 100% FREE MONEY.
No way in heck I’m going to let that happen, so even though the overtime I’m working should theoretically gross me an additional $2,400/mo. I’ll only be throwing in $1,600 towards my 401k.
Leaving me with about $600ish dollars to tinker around with after tax.
To make sure things don’t get too exciting around these parts, I’ll probably just set up an auto-transfer and have that extra money go straight to my brokerage account.
Sexy by the worlds standards? Hardly.
Sexy by not-being-an-idiot-with-new-found-money standards? Absolutely.
That is too bad, fortunately, in the last company I worked for they went back and did a yearly “true-up” to ensure that employees received the full match, even if they maxed out in January, or any other point prior to the end of the year.
Do you have a Roth option available? our company offers both so you could also defer some money to the Roth.
HS
My company also does a year end “match up” if you max out before the year is over.
you should ask your employer if they do a year end true up. My last two employers did that as part of the year-end process. I bet yours does too.
Unfortunately the government does not. Only match contributions for each paycheck. Major bummer otherwise I’d be maxing out as fast as I could in the event my overtime option goes away in a few weeks.
Lame yet responsible. You might be showing your age.
Ha! You’re right for sure. 20 year old Ninja would have boughten a new macbook just because he could.
I’d much rather be sexy by “not-being-an-idiot-with-new-found-money” standards as compared to the world’s standards. Sexy is truly defined by financial independence!!
Pretty sure the $18k max doesn’t include employer contributions. $1600 a month for the next 10 months and $1200 over the first 2 months (Jan/Feb) doesn’t pass $18k.
Correct matching is not part of contribution limit. If I stick to current plan I’ll be about $400 shy of the $18,000 limit. I’ll catch that payment up towards the end of the year. want to leave a little cushion so I don’t contribute a hair too quickly and miss out on a match.
That is smart to do the math on the contributions. My company just throws 3k as a lump sum in whether you contribute or not – it’s nice
I should note that there was a thread comment posted here with 10+ comments between me and Johnh. The comments were mostly us bickering back and forth and after thinking about it, this comments section is not the place for that.
Johnh, if you’d like to continue the conversation, you have my email.
You let Johnh get to you. It’s fine if there are disagreements with your readers, but you really shouldn’t be adding wood to the fire- just ignore them.
You’re right. Had to cool off before I was able to think clearly.
From what I’ve gathered, you’re employer contributions to your 401K don’t count against your annual limit – spend away! http://www.bankrate.com/finance/retirement/employer-match-counts-toward-401k-limit.aspx
My employer doesn’t match any contributions. I’m also locked into a fixed salary with a 45 hour work week. Any overtime, even when it’s pressured on us with ‘consequences,’ is unpaid. $1600/month extra for me would be a bloody miracle.
So, I do admit not being from the good old USA and so I may be wrong here, but haven’t you already said in a previous post that your retirement funds are pretty healthy based on your current contributions? …therefore wouldn’t any extra money come in handy for your taxable investment account? …Retirement savings are wonderful of course, but if retirement already looks good, wouldn’t a potential reduction in the number of years until you can retire be a better investment? ….the whole 401k concept is foreign to me (in Aussie land we have superannuation for retirement) but my understanding is that you can’t withdraw without penalty until you’re aged 60 or over? I’m all for making responsible long term financial choices, but I would love to see the math behind this one (or a correction if my understanding of this 401k thing is wrong…). It’s all well and good to be stupidly rich in your 60’s but if it possible to be rich in your 50’s or 40’s too, wouldn’t that be a good thing?
I was wondering about this too. Ninja even wrote about already having too much in his 401k for his old self, which is why he started a taxable account. Ninja, can you explain this to us?
Sure can, will write a post about it soon. Retiring early is something that is becoming more attractive to me. And there is a way to pull from 401k without penalty.
I knew there was a reason.
Can’t wait to read about it. I know there’s a form (72t?), but if your 401k balance is high enough, you might not mind paying the early distribution penalty & tax.
I’ll play nice now, Ninja.
Glad to have you back.