Are you really REALLY maxing out your 401k? Or do you just think you are?

My grandmother once told me, "There's nothing new under the sun." But now that I'm older, I know she probably borrowed this saying from the Bible, which only proves her point! But after doing financial planning for more than 18 years, I did see something new just the other day.

One of my clients forwarded a message to me from his hospital's Benefits Manager that said:

"Since you have already reached the limit for 2012 of a deferral total of $17,000, your employer matching contribution stopped at $2,164.03.  The maximum matching contribution is $5,000 (2% of the IRS limited total compensation of $250K).  Had  your contributions been [spread out over the year], you would have been able to receive the full matching contribution, and still maxed out your contributions. "

When I read this, I thought, "What? Do you mean this doctor missed out on almost $3000 worth of employer matching contributions?"

And when I spoke with the Benefits Manager, the answer was irrevocably, "Yes."

There was nothing in the Summary Plan Description, and other than the somewhat cryptic email message she has evidently sent him every year for the past three years, nothing in writing either.

It was the first time I'd ever seen anything like this.

In fact, the best practice for funding a 401k is to "front load" your contributionsget them in at the beginning of the yearso that your money has more time to work.

It just goes to show that there's no substitute for good communications between you, your HR person, and your financial advisor.

If it's been a while since you looked at your 401k/403b/401a contribution rate, now might be a good time to contact H.R. and ask them, "Am I maxing out my contributions AND getting the maximum match?"

If not, let's make some adjustments.

And if you know for sure you're maxing out, then the next step is to open and fund an Individual Retirement Account (IRA). Most married couples can get an additional $10,000 into their IRA's, sheltering more from income tax and creditors.

If you have questions or would like to learn more, leave a comment or call me at 541-463-0899.