401k Tip for Early Year Mamas

posted 3 years ago in Pregnancy
Post # 3
11668 posts
Sugar Beekeeper
  • Wedding: November 1999

@KH: That’s a great idea! You’re lucky you can bank so much PTO.  We’re only allowed to carry over 5 of our 16 days per year.

Post # 5
1132 posts
Bumble bee
  • Wedding: October 2012

Definitely smart to sock away as much into retirement as possible now! I’m sure you won’t regret it. 

Post # 6
10384 posts
Sugar Beekeeper
  • Wedding: September 2010

Careful about using all of your sick and vacation leave in one go – there are a lot of Dr appointments in the first year after you get back to work, plus daycare usually won’t take a sick child etc etc. Great tip about the 401K though! If people can afford to take that hit on their takehome, it’s a great idea.

Post # 8
5769 posts
Bee Keeper
  • Wedding: October 2014

I would talk to a tax professional before committing to this. You may not be able to enjoy the full tax benefits of the 401(k) deductions if your combined annual income is below a certain point; if you deduct too much, then you will be faced with paying the Alternative Minimum Tax (AMT) which can really change what is and isn’t deductable amongst your other deductions.  Your 401(k) money might still be able to grow but you’d be basically losing the tax benefits while still tying your money up in a non-liquid asset. 

In other words, depending on your family’s total combined income for the year, deducting that extra 401(k) contribution may force you into paying the AMT, in which case it might be better to just put the same amount into savings or invest it, which would still let the money grow but would also give you access to it if you faced an emergency. Once it’s in the 401(k) you can’t touch it before retirement without paying big penalties, which is a fine trade-off for the tax benefits, but (in my opinion) not worth it if you’re not getting the tax break. If you’ve been carrying your own health insurance and are planning on going onto your husband’s, find out if that is a taxable  benefit (a lot of times, it is) which is also going to increase your total tax bill.

How much this affects you depends on your combined income and your other deductions so you probably need to talk to a CPA.


Post # 10
165 posts
Blushing bee
  • Wedding: May 2013

You’re wise to be thinking through this now, and as a few folks have pointed out, it invariably is more complicated than you might originally have hoped. 🙂  I’ve got a few additional items you’ll want to consider:

1. Be sure to check the provisions of your specific plan – while the IRS permits up to 100% of compensation to be contributed, subject to the annual limits, sponsors can choose to cap it at amounts lower than that (and often do). 

2. Bear in mind that while pre-tax dollars does mean you will avoid paying Federal income taxes on the contributions (subject to the other considerations mentioned earlier), you still will have to pay Medicare and Social Security taxes on that income.

3. The 401(k) contribution limit for 2013 is $17,500, and the limit for 2014 has not yet been announced.  Based on typical cost of living adjustments, it will likely be either $17,500 or $18,000 for 2014.

Good luck with the saving, and I applaud your committment to save now! 🙂

Post # 11
305 posts
Helper bee
  • Wedding: December 2013

I’ve been maxing out my pre federal tax income for a few years now. It’s reeeeally tough sometimes. I am able to change the percentage month to month, so I’m lucky in that regard that I can make it lower if my bills pile up. I also like to bulk up at the beginning of the year, so I have extra cash for thanksgiving/christmas travel and gifts.

Post # 12
208 posts
Helper bee

@KH:  DH accidentally did this a few years ago as his bonus is paid in January and they maxed out his 401K with the bonus.  The only problem was that his employee match wasn’t on an annual basis but a quarterly basis and they only maxed to a certain point so his missed three quarters of employee match.  Not sure what your company’s policy is but something to consider.

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