[Crystal]

I would have done it sooner but a financial advisor told me to focus on my 401k instead so I switched gears. After learning more and more I realized my strategy is to divert as much as possible to both accounts.

On track to max out my 401k and Roth this year which brings me to my question. How do I not accidentally over find my 401k?

A set percentage is deducted from my paycheck each week and I will be getting a raise in a few months too.

Will contributions automatically stop once the account is maxed out for 2023 or…? How does this work?

Newbie here, appreciate your help and this community.

Thanks and happy Thursday!

[Brian]

The vast majority of employers will automatically stop your 401(k) deductions once you reach the max. The area where this usually trips people up is when they switch jobs during the year, in which case you’ll need to manage the amounts for your self to ensure you don’t over contribute.

[Paul]

Employer payroll system should stop you also beware depending on how your employer match is setup if you fund 401k soon in the year you might miss out on the employer match portion. For example, if they only fund a % of what you do and you meet your max by Sept by funding aggressively you might miss out on the employer portion for the last quarter.

[Ron]

It is hard and nearly impossible to overfund your 401ks these days since the payroll system tracks your contributions and automatically cuts off the contributions at the max amount.

That said, if you change employers in the middle of the year, then the new payroll system will not know how much you contributed to the prior employee and, thus, does not know where to cut off contributions.

Still, you should always monitor your check stubs as you near the max annual to make sure you do not over contribute.

[Amy]

FYI, to make sure you understand the differences, “Roth” is a tax treatment on an account type, not an account type itself. A 401k plan can have traditional and Roth options, so you might contribute to a traditional 401k or to a Roth 401k. An IRA also has traditional and Roth options, so you might contribute to a traditional IRA or to a Roth IRA.

[Jule]

It depends on your employer retirement administrator. Some stop it automatically once you reached the max. Ask them.

Also ask what happens if you max early. Will you miss out on the match money or would the match at the same accounting rate that you contribute?

[Author]

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