... but its all mine. 
I had read on a blog where someone was maxing out their 401k, but to maximize it they were hitting the maximum contribution ($15K) by about the middle of March. Whew, that's really putting everything in right away. The idea is that you can put your money into conservative investments early in the year and guarantee an ok return. I think maxing out early only to put the money into conservative funds wastes the effort.
So I was thinking... Next year I should be able to max out my 457 plan (a 401k clone) and have a little money to spare. Should I try this - at least put the money in early to get more time for it to grow? Well I started thinking on how I could make it easier on me. And then it hit me (not too hard). I can let the government help me.
How? Here is my idea (and I have yet to find a problem with this plan). Unlike being self employed, when you work for an employer, all you need to worry about is did I get enough taxes taken out by the end of the year to not have some penalty. Nothing says (that I know of) that the money needs to be taken out evenly the whole year. So why don't I pay myself early, then pay Uncle Sugar later? I'll put into retirement at a rate I will max out the plan at about the half-way point of the year. I can change my tax form to have 2 (or maybe 3) personal deductions for the first half of the year, then 0 deductions for the second half. It wouldn't hurt me much, because I would take net more money home the first half of the year (and I'll be putting it into retirement), then in the second half I won't be putting into retirement, but instead will be catching up on my taxes for the year. In the end the tax man gets what he wants, but I get to use the money earlier. Done right, this could mean an average of 6 more months earning on $15K - depending on the market I could get an aditional $0 to maybe $1.5K in the best of years. OK, I could lose money on this technique, but more years than not it should work in my favor (more up years than down).
OK, any problem with this idea? The only one I can think of is if I were to lose my job mid-year, but if that happened, my taxes would be lower for the year anyway, so it might be a wash.
ADDED: I want to point out that after searching I find that the IRS frowns on this sort of thing. However, there is also the point that if you are not too greedy it'll probably not be an issue (at least what I read on some forums). So as someone said on a TV show once, "let's all be safe out there." My point, be careful and don't use me as any source, I'll disown any knowledge of this. YMMV
This may be a crazy idea...
August 19th, 2006 at 02:45 am
August 19th, 2006 at 03:55 am 1155956127
Good luck balancing it!
August 22nd, 2006 at 07:10 am 1156227040
I would think it depends on the ability of your HR department to implement. With frontloading, there might be some conflicts with other aspects of your plan - if you get a match, do you expect the company to frontload the match, or are they matching throughout the year? 457s - are they government? Is there some weird rule that you have to be paid a certain amount?
August 22nd, 2006 at 02:27 pm 1156253223
To baselle: Yep, the 457 plan is for governments. Its like a 401k, but with slightly different distribution rules. My employer "match" goes into a pension plan, as the 457 gets no match, so thats not a concern for me. I wasn't thinking of paying no taxes early in the year, just a much lower amount, so I think I should be safe with that. As for an IRA, I want to set one up early next year for this year, then put in for next year as well. I figure that should get me over the level where I won't be charged a maintenance fee for whatever I set up. Any yes, it will be a Roth account.