What front-loading actually is
Front-loading means setting a deferral rate high enough that you reach the annual limit before the year is over. Someone earning $200,000 and deferring 25% of every paycheck hits it around the middle of the year; someone deferring 50% hits it in the spring. The appeal is obvious and not wrong: money in the market earlier has longer to grow.
What is less obvious is that in most plans it costs you employer match, because the match is calculated on each pay period rather than on the year. Once your contributions stop, so does the match, and the periods you have left are matched on nothing. You have not contributed less over the year. You have moved it all into the part of the year the match was watching, and then stopped while it carried on watching.
What it costs
The size of the loss depends on how early you finish and how generous the formula is. Reach the limit exactly halfway through the year with a match worth 5% of pay, and you give up half of it. Reach it in the spring and you give up most of it. The pattern is that the earlier you finish, the more you forfeit, and the loss is bounded only by the size of the match itself.
There is a rate that reaches the limit exactly at the final pay period, and at that rate nothing is forfeited because the contribution never stops. It is simply the annual limit divided by your salary, and it is usually a lower number than people expect. Our true-up calculator works it out alongside what the pacing currently costs you.
When front-loading is still the right call
It is a trade rather than a mistake, and there are cases where the trade is good:
- Your plan has a true-up. Then the match is restored after year end and the cost is only the timing of when the employer money arrives. See what a 401(k) true-up is.
- You expect to leave mid-year. Contributions you have not made by your last day are contributions you never make, and securing the full annual amount can be worth more than the match on the months you will not be there for.
- Your employer does not match at all. There is nothing to forfeit, and the only consideration left is how early the money goes in.
- Cash flow makes it necessary. Some people can afford to contribute heavily early in the year and not late, for reasons that have nothing to do with tax.
The mistake worth avoiding
The one to avoid is front-loading by accident: raising the deferral rate to “maximise” the contribution without noticing that the plan matches per period, and then never finding out what it cost. That is a decision nobody made, and it is the commonest version of this. Whichever way you go, it is worth going there deliberately and with the figure in front of you.