How can I configure my Vanguard 401(k) account so that the pre-tax 401(k) deferral is always the maximum possible (e.g., over 18kUSD in 2017, excluding the employer matching)?

When I go to the Vanguard website (https://retirementplans.vanguard.com/VGApp/pe/PublicHome##/), it seems I may only indicate a percentage, which is a pain since 1) I have to compute the exact percentage 2) the percentage will change every year.

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  • If your company doesn't do matching, you can be lazy and just put in whatever percentage maps to $750 a paycheck. If you're paid biweekly, that gives you an extra $1500 at Christmas time. Otherwise, yeah, it's math time. Sep 4 '17 at 0:58
  • Note even if it is possible, there is little damage in overcontributing, as the 401 broker will inform you in January, and you just the exact over-amount back out.
    – Aganju
    Sep 4 '17 at 11:51
  • Are you 100% certain that's the interface you're supposed to be using to make this election? Typically the administrator of the 401(k) plan cares about how you want the money allocated after they've received it from your employer (which is why they want to know percentages). Your employer should have a separate interface for indicating how much money you want contributed per paycheck.
    – dg99
    Sep 5 '17 at 20:25

You can always overestimate the monthly contribution so that it will add up to more than the limit by the end of the year. The 401(k) broker is required to limit your contributions in any year to the limit (i.e. when you contribute to a single 401(k) during the year, it should never be possible for it to go over the limit; only when you contribute to more than one 401(k) during the year would it be possible to accidentally go over the limit, because one of them doesn't know how much you contributed to the other).

  • "The 401(k) broker is required to limit your contributions in any year to the limit" -> required by law? Sep 4 '17 at 3:24
  • @FranckDernoncourt: I believe IRC 401(a)(30) says that for a plan to be qualified, they must limit contributions each year from the same person to all the plans under the same employer to under the limit.
    – user102008
    Sep 4 '17 at 21:43

Assuming that you have not changed employers this year, set the percentage withholding from your paycheck to whatever leaves you enough money for use till the next paycheck comes in. If the cumulative 401(k) withholding will exceed the IRS-mandated limit, Vanguard as the plan administrator, or your employer payroll department will cutoff 401(k) withholding when your total 401(k) deductions get to the limit. When I was employed, I used to hit the limit in October usually, and so the October take-home pay was larger because a smaller percentage was withheld in that month, and the November and December paychecks were even more larger because there was no 401(k) withholding for those months (of course, income tax deductions went up in those pre-Roth days and so the reduced withholding did not increase the take-home pay on a dollar-for-dollar basis.

In short, don't sweat the details to calculate the exact percentage you want withheld each month so as to hit the limit to the penny on your last paycheck for the year, and don't bother to change the percentage setting from year to year to hit the limit exactly on your last paycheck for the year. If you start hitting the limit in mid-summer, maybe it is time to reduce the percentage a bit and spread out the deductions a little, but that is a personal preference.

  • 2
    This is bad advice. If you follow it, you give up part of your employer match. In your example, you lose the match for November and December. If you get paid $120k and your match is on the first 6% of your contribution but you contribute 18% for ten months, you are giving up two months of match here. That's $12k for a 100% match in this example (or $6k for 50%). You don't need to hit the limit on the last paycheck, but you do want to hit it in the last pay month, after you max out your match.
    – Brythan
    Sep 4 '17 at 14:38
  • 1
    @Brythan All 401(k) plans that I am familiar have employer match contributions occurring not per paycheck but rather per quarter (or semi-annually), and all of them match on the total contribution, not on a per-pay-check basis. Thus, those who "lose out" on the employer match are those who contribute less than the limit, not those who max out their employee contributions. The latter might not have the employer match deposited into the 401(k) account until the end of the year, and thus they lose out on the investment gains on the match account, but this is offset in part ..... (continued) Sep 4 '17 at 15:07
  • ---(continued)... by more investment gains due to the earlier deposit of funds into the employee account. Now, your 401(k) might have different ways of computing and depositing the employer match, but I stand by my advice. Sep 4 '17 at 15:11
  • @DilipSarwate My previous employer matched per paycheck, and we did indeed lose money if we contributed too much too soon. (And this was a very well-known company with tens of thousands of employees, so I'm guessing it's not all that uncommon.)
    – dg99
    Sep 5 '17 at 20:10

You have to decide how even you want the amounts withheld to be and how many times you want to have to make an adjustment.

In the past when the system my company used only allowed you to state a percentage, I found I was able to hit the target reasonably well by setting the percentage 3 times. The key was to keep track during the year.

The first adjustment would be done to guess a percentage for the first paycheck of the year. Then in the spring my company give salary increases. Once that was received I used a few lines in a spreadsheet to determine how many checks at x% and how many checks at y% would be need to reach my goal. There was a limiting factor to make sure that last check of the year still had enough withheld that I received the full match.

That last point for me was very important. If I hit the annual limit in October, that would seem to be good because I then had extra large checks late in the year. But that also meant that those last checks of the year didn't trigger matching funds so I could be leaving hundreds of dollars on the table.

Using the three settings I was always able to hit the annual limit on the last paycheck, and still get all the match.

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