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Contributing to two 401k plans?

I work two jobs and am fortunate enough to be able to contribute the max of $17500 to my primary job, which matches $0.50 for every dollar up to 4% (total of 2%). I also work part-time at my second job, which has a 3% match that I do not contribute to at this time (I make ~10,000/yr at this 2nd job).

My question is do you think it would be wise to invest in both 401ks, just to take advantage of the free money from the 3% match, as long as I don't contribute >$17500 cumulatively? I know we're only talking about ~$300/yr in the 2nd job, but hey, free money is free money!

Aug 14, 2014 by Kyle from Stow, OH in  |  Flag
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6 votes
Peter C. Karp Level 20


First of all, if you are under 50 years old the most you can contribute cumulatively to a 401(k) plan is $17,500 for 2014 even if you have several jobs that offer you a 401(k). If you are over 50, you can contribute and additional $5,500. It is not just about getting a match but getting the most match. With that in mind, if it is feasible for you, I would suggest contributing 100% of your salary from job two into that 401(k) plan with the 3% match and make up the difference in contributions to job one’s plan with the 2% match. As the other advisors mentioned, evaluate the investment returns and fees in both plans to make sure you maximize your contributions to the right plan. Please contact us at 415-345-8185 if you would like further guidance.

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Comment   |  Flag   |  Sep 16, 2014 from San Francisco, CA

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2 votes

Free money is free money. So how do you decide? Two considerations to chew on:

1) Is the second plan comparable to the first? What you gain in free money could be lost to poor investments or higher fees.

2) An extra $300/year invested for 20 years with 6% returns has a future value of $11,036, ignoring inflation. It's nothing to sneeze at, and it probably won't let you retire early either. If you have less than 20 years, the benefit is lower. More than 20 years, it goes up a bit.

Weigh these considerations out and see what makes sense for you.

Happy investing!

2 Comments   |  Flag   |  Aug 14, 2014 from Midland, MI
David J Haas, CFP®

Get the match! As Jeremy says, its free money. You just have to make sure you don't contribute more than the $17,500 limit (2014) over the two employers. As Arie points out, if you are over 50, there is a catch-up contribution also possible.

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Flag |  Aug 14, 2014

I have about 35 years left until I retire. Is there a penalty for going over the $17,500? I know you have to take the overage out plus any interest accrued if you go over the max. But let's say, for arguments sake that I went over for 2015 by $100 and later withdrew that money plus interest and claimed it as income. If the same thing happened in 2016 would I eventually get a penalty for going over too many years in a row?

Flag |  Aug 15, 2014 near Stow, OH

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Kyle, take the match. Though anything is possible, I would not expect a 3% or more variation between like investments in the different plans. I don't see any practical downside to taking the match.

Additionally, look at both plans to see which is the better plan. If your second job offers a better plan; lower expenses, better investment choices, greater diversification, you might want to consider putting more into that plan. If you like the second plan better, you could, if you wish, put up to your entire $10,000 salary into that plan. You do not have to decide that today, but you should start taking that match tomorrow.

If you were just contributing to one plan, it is likely the administrator would not allow you to contribute more than $17,500. However, because you will have 2 plans, it is incumbent on you to be sure you do not contribute more than the limit. If you over-contribute, you have until April 15 of the following year to take a ‘corrective distribution’, and have the overpayment and any interest earned declared as taxable income; any amount….no penalty, but it’s a pain. Very important; if you make your corrective distribution after April 15, you will be subject to double taxation. That is, you will be taxed on principal and earnings for the year the contribution was made, and then again on the year it was distributed.

Comment   |  Flag   |  Aug 18, 2014 from Delray Beach, FL

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There is another consideration. If you are over 50 years of age you can contribute an additional $5500.

Comment   |  Flag   |  Aug 14, 2014 from Suffolk, VA

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