Photo by Dafne Cholet

I started 2017 with no 401(k) contributions

Since focusing on retirement saving a year ago, I’ve aimed to maximize my tax-sheltered options. My company provides a 401(k) with no match. I can still benefit from it in the form of a huge tax deduction up front along with tax-free dividend growth within the account.

I had lots of room to improve my saving habits. My company discontinued my 401(k) match a few years ago around the same time I bought my house. I discontinued my 401(k) contributions for a period of time. I only decided to resume 401(k) contributions in April of 2017 (this year).

My income allows me to max out my 401(k). In April, I set my employee 401(k) contribution to $1,500 per month, which would come out to the IRS maximum of $18,000 per year.

At this point, I gave myself a huge pat on the back

Great job, Mr. Dividend Dozer. I was now contributing what I thought was the maximum I could. Four months went by and I felt great about my discipline in saving. And then in August, I realized I was not actually maxing out my 401(k). In fact, I would have been leaving over $4,000 of potential tax-deductible investments on the table.

Realizing another beginner mistake

After realizing I did not max out my Roth IRA for 2016, I am glad I realized my 401(k) mistake while I still had time to correct it. I only began contributions in April. Contributing $1,500/month amounts to $18,000 over twelve months, but I only had April-December to work with for 2017.

I bumped my monthly contribution to $2,466 for the last half of August through the end of the year. My 2017 401(k) will be maxed out. I’ll have to contribute less to my taxable accounts, but this is another step towards financial independence. When 2017 is over, I can scale back my 401(k) contributions to $1,500 per month. I look forward to that! It might be painful now, but I will be happy to maximize another one of my 2017 tax-sheltered accounts.