Should You Fund Your 401(k) for the Year in Just One Month?
Did you know you can fund your entire 401(k) for the year in just one month?
This strategy isn’t right for everyone…but for high earners, executives, or professionals with uneven cash flow, it can be a powerful, tax-savvy tool to accelerate retirement savings.
Let’s dive in…
How It Works
Your 401(k) contributions are tied to payroll. If you receive a large paycheck or bonus, you may be able to allocate enough of that single paycheck to hit the IRS maximum contribution limit for the year.
For 2025, that limit is $23,000 (or $30,500 if you’re age 50 or older and eligible for catch-up contributions).
Instead of spreading contributions evenly over 12 months, you essentially “front-load” them.
Why Someone Might Do This
Cash Flow Flexibility: If you’re expecting a big bonus, you can leverage that windfall for retirement savings all at once.
Tax Planning: Accelerating contributions could reduce taxable income earlier in the year.
Investment Timing: Getting money into the market sooner means more time for potential growth.
Simplicity: You can “check the box” on retirement savings early and focus on other financial priorities throughout the year.
The Tax-Saving Advantage (Where the strategy can really shine)
Immediate Income Reduction – Contributions to a traditional 401(k) are made with pre-tax dollars. By front-loading, you reduce your taxable income significantly in the same month the contribution is made. For example, if you earn $20,000 in a bonus and direct $20,000 into your 401(k), your taxable income for that paycheck is effectively zero.
Bracket Management – For high earners, front-loading can help keep more of your income in a lower tax bracket earlier in the year. Instead of letting a big paycheck bump you into a higher bracket, you can shelter much of it.
State Tax Savings – In states like Massachusetts or Rhode Island, where every extra dollar is taxed, pushing more income into your 401(k) means lowering both federal and state tax liability.
Long-Term Tax Deferral – Beyond the immediate benefit, every dollar contributed is money growing tax-deferred. That can add up to tens of thousands of dollars in avoided taxes over a career.
A Real-Life Tax Savings Example
Let’s say you earn $250,000 a year in Massachusetts. In 2025, the IRS lets you contribute up to $23,000 to your 401(k).
If you do nothing, your federal tax bill would be about $57,875, plus Massachusetts income tax of $12,500.
If you contribute the full $23,000 to your 401(k) all at once (say, from a January bonus), your taxable income drops to $227,000.
That one move would:
Lower your federal tax by about $7,548
Reduce your Massachusetts tax by another $1,150
Giving you a total immediate tax savings of nearly $8,700
And that’s before you even factor in the long-term benefit of tax-deferred growth inside your 401(k).
Important Considerations
Employer Match: Some employers match contributions per paycheck. If you front-load, you may miss out on part of the match later in the year.
Cash Flow Strain: Setting aside such a large amount in one month isn’t realistic for everyone. Make sure it won’t disrupt your financial stability.
Plan Rules: Not all 401(k) plans allow front-loading. Confirm with HR or your benefits department before attempting it.
Tax Implications: While contributions reduce taxable income, talk with a financial advisor to make sure this fits with your broader tax and investment strategy.
Would funding your 401(k) for the year in a single month be right for you?
The tax savings from reducing taxable income in a high-earning month can be significant.
But this move works best when it’s part of a broader strategy and carefully coordinated with your overall financial plan.
👉 Interested in exploring this strategy with a trusted advisor?
The right financial advisor who understands your cash flow needs and overall financial picture can help you evaluate the pros and cons of this strategy.
Financial Fit will help you find the right advisor for you.