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PDtax
PDtax, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 4093
Experience:  35 years tax experience, including four years at a Big 4 firm.
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Is there any reason to contribute monthly to my 401K vs

Customer Question

Is there any reason to contribute monthly to my 401K vs waiting until the end of the year to fully invest in it? Other than not having to pay one lump sum.
Submitted: 2 months ago.
Category: Tax
Expert:  Dr. Fiona Chen replied 2 months ago.

Dear Customer,

1) If the employer matches contributions, a lot of time, the employer matching by the monthly contribution amount. So, if someone waits until the yearend to put in entire 18,000 contribution, e.g., then, the employer may still just match based on the monthly contribution on the same proportion. Then, this employee will miss out on the employer matching for 11 months.

The employer is at the right because the strict rules and regulations of a 401(k), the employers are not allowed to match more than the salary amount and not just the contribution amount. Say someone contribute the entire amount in the beginning of the year, the employer cannot just match the whole year amount in the first pay period because the contribution and matching has to be at a percentage proportion to the earned wages.

2) We never know what happens in the future. If by the end of the year, somehow, I separate from the employer, the retirement plan administrator may not allow me to put in a whole year (or the sum up to then) contribution after I am technically separated from the employer.

3) Supposedly, the 401(k) plan not only shelter the taxable income, it should also produce tax-deferred income. We should try to put into the 401(k) plan as soon as we are allowed. Otherwise, we are loosing out on the opportunity for the tax-deferred investment return.

Regards,

Fiona Chen, MPA, Ph.D., CPA, ABV, CFF, CITP

Customer: replied 2 months ago.
Relist: Answer quality.
Expert:  PDtax replied 2 months ago.

Hi from just answer. I'mCustomer I see you asked for a different expert. I will assist.

Expert:  PDtax replied 2 months ago.

There is one good reason to invest monthly, C and that is too dollar cost average your purchases.

This way, you get to buy more shares when prices are lower, and you are less likely to buy at market highs.

Our investment theory starts with the notion that buying something fit the right price is as important seeking it for the right price. Dollar cost averaging insured you do not buy at the worst time to invest, improving your investment odds of gains.

Thanks for asking at just answer. Please rate my assistance with positive feedback to close your request. I'mCustomer