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