Best Way to Max out your 401k Contribution

Ok so you have convinced yourself that you want to maximize your 401k contributions. Congrats!

Simply put, the easiest, most straight forward way to max out your 401k contributions is to taking the remaining amount your can contribute and divide it by the number of paychecks remaining for the year. This will tell you what you contribution needs to be to maximize your 401k. I would also round up a few dollars so you actually max out during your last paycheck - this will ensure you don't come up a few dollars short at the end of the year from the maximum allowable contribution.

Lets take some examples:
If you start at the beginning of the year and get paid 2 times/month then your maximum 401k contribution is $15,500 (for 2008) and you have 24 paychecks remaining. Therefore your maximum contribution needs to be at least:

[Remaining contribution amount] / [# of Paychecks remaining] = [Contribution Needed to Max 401k]

[$15,500 2008 401k contribution limit] / [24 paycheck remaining] = [Contribution Needed to Max 401k]

[$15,500] / [24] = [$645.84]

In this example your contribution needs to be at least $645.84 in order to max out your 401k contributions. I would recommend rounding up to $650 per paycheck so that in the last paycheck your payroll dept will automatically only contribute $550 and you have a little extra money in your paycheck for the holidays.

Lets take another example:
Say its February 20th, 2008, your get paid twice a month, and you have already made 401k contributions for the year of $1200. This means you have already received 3 paychecks and there are 21 paychecks remaining in the year. You can quickly determine how much you have contributed so far by looking at your last paycheck stub. You have now decided to maximize your 401k contributions for the year.

[Remaining contribution amount] / [# of Paychecks remaining] = [Contribution Needed to Max 401k]
[$15,500 2007 401k contribution limit - Amount already contributed] / [21 paycheck remaining] = [Contribution Needed to Max 401k]

[$15,500 - 1200] / [21] = [Contribution Needed to Max 401k]

[$14,300] /[21] = $680.96

If your payroll dept only lets you set your 401k contributions by percentage of salary then just divide your contribution amount by your gross paycheck to determine your contribution percentage.
More info on 401k contributions:

After tax 401k contributions
2008 401k contributions limit
Are employer contributions counted towards your 401k max?
Why you need to dollar cost average into your 401k with employer match

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Comments (7)

This is a simple solution with the math clearly explained, but what happens if your job has some overtime that also contributes to the 401(k)? My company only allows whole percentages and I never know from week to week how much I will work (and therefore how much I get will get paid). If I max out too soon, I lose out on the company match, but yet, I don't want to have to contribute half of my last paycheck to get to the max.

Any thoughts on a situation like this?

Posted by Chris | February 22, 2008 1:50 PM

I agree with the article. What surprises me is how many people just contribute the amount that will be matched by the employer and then they stop. I regards to Chris' question, overtime is not a problem. If you over fund your 401K early in the year they just stop taking it out at the end of the year. It is really kinda cool because then at the end of the year your pay check goes up. Who could use a little extra pay at Christmas time! Over funding also applies to bonus checks if they have 401K money taken out of them.

Posted by Bob | February 23, 2008 8:32 AM

Chris, In your position maybe seeing if you can determine if there is a minimum average of the amount of overtime you expect tot work based on your hours by month from last year.

Another idea I'd mention is to just ignore the overtime as it factors in, just think of it as bonus in helping you max out your 401k faster. Which I don't see a downside to (assuming you can afford the lower net pay assuming the deductions) That brings up the question of what happens to your company match if you've maxed out in October, would you lose the matching contributions in November and December? That's something you'd have to ask your HR / Payroll department.

Posted by Clint | February 23, 2008 10:14 AM

If you are paid bi-weekly, then there is actually 26 pay periods through out the year.

Posted by Money Mike | February 27, 2008 12:01 PM

You should mention that the match is not counted towards your $15,500. Last year i went through some difficult calculations to get my contributions+match to get to the limit... Turns out that it is only the contributions deferred from the employee pay that is counted. In fact the employer can "match" a huge amount of money. It's something like $40k "match", can be contributed by the employer!

Posted by mlathe | February 28, 2008 1:33 PM

I have been looking on the internet to find how 401k funds are structured for payout when you reach the point you want to do so. I don't even see any of that info at my 401k companys website. Any suggestions where to find the info? Thanks.

Posted by Billy | March 20, 2008 10:51 AM

I am a part time employee allowed to contribute to the company 401K. I have the maximum percentage (25%) deducted from each paycheck. I also have 8% deducted for catch up contributions. Today I received notice that because my regular contributions will not be $16500 (even though I max what I am allowed to contribute) I can not make catch up contributions. Is this right? I've been making catch up contributions for two years.

Posted by Andrea | July 1, 2011 12:06 AM