Tuesday, October 31, 2006

401k all at once or bi-weekly?

Next year I'll be able to contribute to my employer's (big company) 401k plan. However, apparently, now, I have to specify contribution percentages.

Do I maximize my percentage and try to hit the employee contribution max in the first few pay checks (actually my new employer limits the contribution to 50% of pay) or do I stretch it out over the course of a year?

My gut says put the money in the market righ away. Immediately, it would be protected as an asset and I would guarantee myself the opportunity to put it in if Big Company decided to RIF (reduction in force) me, downsize or whatever (paranoia is mine as a new employee).

My other gut (did I know I had two?) says to DCA (dollar cost average) to protect me against market fluctuations. What would you do?

Alternative is to put it in right away into a MM and then reallocate it periodically.

Regards,
makingourway

8 comments:

Kira said...

If you think that you are likely to get downsized and you can afford the big contribution, I would do it sooner rather than later. The MM idea is a good one - you can dollar cost average like you were contributing all year, but still earning some interest on the waiting remainder.

Anonymous said...

I would max out for this year, in the MM, so you can dca at your pace. Then set up for regular bi-weekly's for the new year.

This is a must, if you have no need for the cash.

Lazy Man and Money said...

I'd max out this year as well.

Next year, I'll probably do a combination of the two methods, trying to get to the max in the first 6 months or so. I can contribute up to 75%, so I could probably max it out fairly early if I wanted to do so, but I like the idea of dollar cost averaging at least a bit.

makingourway said...

I should have mentioned that I will max out my contribution this calendar year (Nov. and Dec.). If they don't let me adjust for next year, I'll end up maxing out next year very quickly as well.

As the consensus moves, I'm tempted to put the new money or all of both year's contributions into the MM and DCA it over the next 12 or 14 months.

I wonder how cooperative they'll be with fund transfers?

Regards,
makingourway

Lazy Man and Money said...

Most 401k companies allow you to change your contribution amount online. They also allow you to rebalance your investments (i.e. do fund transfers) online as well. My new one will even rebalance your account for you quarterly if you want.

makingourway said...

lazy man,
That's what I'm hoping will happen, too (that I can transfer at will).
Regards,
makingourway

Jim said...

If I were you I would spread out the 401K investments over a year. If the market goes straight up next year, obviously you would be better off maxing out as soon as possible.

However, I personally would prefer to protect myself from market fluctuations as much as I could be spreading the investment fairly evenly throughout the year.

Anonymous said...

Who is the fund company the 401k is with? Money markets normally have zero or minimal spreads, therefore, if you can transfer funds you might as well get the money earning interest as soon as possible.