Lump Sum of Cash: Use to live and increase employer 401(k) match?

Investing
#1

I recently received $10,000 after a grandparent passed away. My plan is to use $6,000 to max out my Roth IRA. With the remaining, would it be smarter to live on it for a while and go nuts on my employer 401(k) match for a few months, or just dump it into my taxable brokerage account and maintain current 401(k) contributions?

My work plan is a flat match of $0.25 for every $1 I contribute, so I’m pretty much incentivized to contribute as much as possible since the match never stops.

Or should I go even further and not fill my Roth IRA right away so I can go nuts on the 401(k) even longer?

It’s fun to think about how best to optimize the match, but on the other hand I’m not sure I want to sit on so much cash for several months.

Curious to hear what people think. Thanks!

#2

Hi Daniel,
Wow that is an AWESOME deal that you have with your 401k plan!

Based on this list I think it would be best to go nuts with the 401k since all of it is getting matched. So this option would stretch your money the furthest. That’s automatically a free $2,500?!?!?

In your case this is how I would prioritize:

  1. Contribute to 401k up to match = Max out 401k
  2. Max out Roth IRA
  3. Taxable brokerage

I would love to know what you end up doing!

#3

Thank you, Vivi!

That definitely makes sense and seems optimal.

I do have one more question for you: when you stopped working and lived off savings for a while, did you tap into tax-advantaged accounts or were you able to do it from a taxable brokerage? I’m not going to do that at the moment but I like to think with an eye toward how that would play out if I ever decide to. Right now I’m in my 20s so it’s a ways to 59.5! Would you make any adjustments based on that consideration, or just continue to go hard and view the penalty as a good problem to have if it means I have enough saved to live for a while?

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#4

Hi Daniel,

I would go hard and view the penalty as a good problem to have. But ALSO if you retire early, then you will have too much money that probably not all of it would fit in your tax advantaged accounts anyway :slight_smile: And, considering that your 401k is getting you an extra +25%, a 10% penalty doesn’t sound bad at all :laughing:

If you haven’t already seen this post here’s a few other options for taking out retirement funds early: https://www.instagram.com/p/CCBMWNtnyqJ/

When I quit my job I took money from my taxable brokerage account. Honestly I didn’t have an option because I didn’t have anything else besides a 401k at the time. :zipper_mouth_face: But today I would still do the same thing since the taxable brokerage is the lowest priority of where retirement funds should be kept !

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