Why do employers require you to spread your 401(k) contributions throughout the year to get the maximum match?
If one makes say, $10K/mo, and the company will match the first 5% dollar for dollar, a 10%/mo deposit of $1K/mo will see a $500/mo match. If the employee manages to request 90% get put into the 401(k), after 2 months, he's done.  If the company wished, they could continue the $500/mo match, I agree. They typically don't and in fact, the 'true up' you mention isn't even required, one is fortunate to get it. Many companies that match are going the other way, matching only after the year is over. Why? Why does any company do anything? To save money. I used to make an attempt to divide my deposit over the year to max out the 401(k) in December and get the match real time, not a true up. "The only way to know the specific explanation in your situation is to ask your employer. Different companies do it differently, and they will have their reasons for that difference. I've asked ""But why is it that way?"" enough times to feel confident in telling you it's rarely an arbitrary decision.  In the case of your employer's policy, I can think of a number of reasons why they would limit match earnings per paycheck: Vesting, in a sense - Much as stock options have vesting requirements where you have to work for a certain amount of time to receive the options, this policy works as a sort of vesting mechanism for your employer matching funds. Without it, you could rapidly accumulate your full annual match amount in a few pay periods at the beginning of the year, and then immediately leave for employment elsewhere. You gain 100% of the annual match for only 1-2 months of work, while the employees who remain there all year work 12 months to gain the same 100%. Dollar Cost Averaging - By purchasing the same investment vehicle at different prices over time, you can reduce the impact of volatility on your earnings. For the same reason that 401k plans usually restrict you to a limited selection of mutual funds - namely, the implicit assumption is that you probably have little to no clue about investing - they also do other strategic things to encourage employees to invest (at least somewhat) wisely. By spacing their matching fund out over time, they encourage you to space your contributions over time, and they thereby indirectly force you to practice a sensible strategy of dollar cost averaging. Dollar Cost Averaging, seen from another angle - Mutual funds are the 18-wheeler trucks of the investment super-highway. They carry a lot of cargo, but they are difficult to start, stop, or steer quickly. For the same reasons that DCA is smart for you, it's also smart for a fund. The money is easier to manage and invest according to the goals of the fund if the investments trickle in over time and there are no sudden radical changes. Imagine if every employer that does matching allowed the full maximum match to be earned on the first paycheck of the year - the mutual funds in 401ks would get big balloons of money in January followed by a drastically lower investment for the rest of the year. And that would create volatility. Plan Administration Fees - Your employer has to pay the company managing the 401k for their services. It is likely that their agreement with the management company requires them to pay on a monthly basis, so it potentially makes things convenient for the accounting people on both ends if there's a steady monthly flow of money in and out. (Whether this point is at all relevant is very much dependent on how your company's agreement is structured, and how well the folks handling payroll and accounting understand it.) The Bottom Line - Your employer (let us hope) makes profits. And they pay expenses. And companies, for a variety of financial reasons, prefer to spread their profits and expenses as evenly over the year as they can. There are a lot of ways they achieve this - for example, a seasonal business might offer an annual payment plan to spread their seasonal revenue over the year. Likewise, the matching funds they are paying to you the employees are coming out of their bottom line. And the company would rather not have the majority of those funds being disbursed in a single quarter. They want a nice, even distribution. So once again it behooves them to create a 401k system that supports that objective. To Sum Up Ultimately, those 401k matching funds are a carrot. And that carrot manipulates you the employee into behaving in a way that is good for your employer, good for your investment management company, and good for your own investment success. Unless you are one of the rare birds who can outperform a dollar-cost-averaged investment in a low-cost index fund, there's very little to chafe at about this arrangement. If you are that rare bird, then your investment earning power likely outstrips the value of your annual matching monies significantly, in which case it isn't even worth thinking about." There's no such requirement in general. If your particular employer requires that - you should address the question to the HR/payroll department. From my experience, matches are generally not conditioned on when you contribute, only how much.
The matching funds are free money, so it is a very good idea to take that money off the table.  Look at it as free 100% return: you deposit $1000, your employer matches that $1000, you now have $2000 in your 401(k).  (Obviously, I'm keeping things simple.  Vesting schedules mean that the employer match isn't yours to keep immediately, but rather after some time; usually in chunks.) Beyond the employer match, you need to consider what is available for investment in a 401(k).  Typically, your options are more limited then in an IRA.  The cost of the 401(k) should be considered, as it isn't trivial for most.  (The specifics will of course vary, but in large IRA accounts are cheaper.) So, it's about the opportunity costs.  Up to the employer match, it doesn't matter as much that your investment choices are more limited in a 401(k), because you're getting 100% return just on the matching funds.  Once that is exhausted, you have more opportunity for returns, due to having more options available to you, by going with an account that provides more choices. The overall principle here is that you have to look at the whole picture.  This is similar to the notion that you should pay-down your high interest debt before investing, because from the perspective of investing the interest you're paying represent a loss, or negative return on investment, since money is going out of your accounts.  Specific to your question, you have to consider the various types of investment vehicles available to you.  It is not just about 401(k) and IRA accounts.  You may also consider a straight brokerage account, a savings account, CDs, etc.  The costs and returns that you can typically expect are your guides through the available choices. "To answer the first part of your question: yes, I've done that!  I did even a bit more.  I once had a job that I wasn't sure I'd keep and the economy wasn't great either.  In case my next employer wouldn't let me contribute to a 401(k) from day one, and because I didn't want to underfund my retirement and be stuck with a higher tax bill - I ""front-loaded"" my 401(k) contributions to be maxed out before the end of the year.  (The contribution limits were lower than $16,500/year back then :-)) As for the reduced cash flow - you need of course a ""buffer"" account containing several months worth of living expenses to afford maxing out or ""front-loading"" 401(k) contributions.  You should be paying your bills out of such buffer account and not out of each paycheck.  As for the reduced cash flow - I think large-scale 401(k)/IRA contributions can crowd out other long-term saving  priorities such as saving for a house down payment and the trade-off between them is a real concern.  (If they're crowding out basic and discretionary consumer expenses, that's a totally different kind of problem, which you don't seem to have, which is great :-)) So about the trade-off between large-scale 401(k) contributions and saving for the down payment.  I'd say maxing out 401(k) can foster the savings culture that will eventually pay its dividends.  If, after several years of maxing out your 401(k) you decide that saving for the house is the top priority, you'll see money flow to the money-market account marked for the down payment at a substantial monthly rate, thanks to that savings culture. As for the increasing future earnings - no.  Most people I've known for a long time, if they saved 20% when they made $20K/year, they continued to save 20% or more when they later made $100K/year.  People who spent the entire paycheck while making $50K/year, always say, if only I got a raise to $60K/year, I'd save a few thousand.  But they eventually graduate to $100K/year and still spend the entire paycheck.  It's all about your savings culture. On the second part of your question - yes, Roth is a great tool, especially if you believe that the future tax rates will be higher (to fix the long-term budget deficits).  So, contributing to 401(k) to maximize the match, then max out Roth, as others suggested, is a great advice.  After you've done that, see what else you can do: more 401(k), saving for the house, etc." The amount you contribute will reduce the taxable income for each paycheck, but it won't impact the level of your social security and medicare taxes. A 401(k) plan is a qualified deferred compensation plan in which an   employee can elect to have the employer contribute a portion of his or   her cash wages to the plan on a pretax basis. Generally, these   deferred wages (commonly referred to as elective contributions) are   not subject to income tax withholding at the time of deferral, and   they are not reflected on your Form 1040 (PDF) since they were not   included in the taxable wages on your Form W-2 (PDF). However, they   are included as wages subject to withholding for social security and   Medicare taxes. In addition, employers must report the elective   contributions as wages subject to federal unemployment taxes. You might be able to keep this up for more than 7 weeks if the company offers health, dental and vision insurance. Your contributions for these policies would need to be paid for before you contribute to the 401K. Of course these items are also pre-tax so they will keep the taxable amount at zero. If there was a non-pretax deduction on your pay check that would keep the check at zero, but there would be taxes owed. This might be union dues, but it can also be some life and disability insurance polices. Most stubs specify which deductions are pre-tax, and which are post-tax. Warning. If you get the company match some companies give you the maximum match for those 7 weeks, then zero for the rest of the year. Others will still credit you with a match at the end of the year saying if you should get the benefit. It is not required that they do this. Check the company documents. You could also contribute post-tax money, which is different than Roth 401K, for the rest of the year to keep the match going. Note: If you are turning 50 this year, or are already 50, then you can contribute an additional $5,500 "I'll add 2 observations regarding current answers.  Jack nailed it - a 401(k) match beats all. But choose the right flavor account.  You are currently in the 15% bracket (i.e. your marginal tax rate, the rate paid on the last taxed $100, and next taxed $100.) You should focus on Roth. Roth 401(k) (and if any company match, that goes into a traditional pretax 401(k). But if they permit conversions to the Roth side, do it) You have a long time before retirement to earn your way into the next tax bracket, 25%. As your income rises, use the deductible IRA/ 401(k) to take out money pretax that would otherwise be taxed at 25%.  One day, you'll be so far into the 25% bracket, you'll benefit by 100%   traditional. But why waste the opportunity to deposit to Roth money   that's taxed at just 15%? To clarify the above, this is the single rate table for 2015:  For this discussion, I am talking taxable income, the line on the tax return designating this number. If that line is $37,450 or less, you are in the 15% bracket and I recommend Roth. Say it's $40,000. In hindsight on should put $2,550 in a pretax account (Traditional 401(k) or IRA) to bring it down to the $37,450. In other words, try to keep the 15% bracket full, but not push into 25%.  Last, after enough raises, say you at $60,000 taxable. That, to me is ""far into the 25% bracket."" $20,000 or 1/3 of income into the 401(k) and IRA and you're still in the 25% bracket. One can plan to a point, and then use the IRA flavors to get it dead on in April of the following year.  To Ben's point regarding paying off the Student Loan faster - A $33K income for a single person, about to have the new expense of rent, is not a huge income. I'll concede that there's a sleep factor, the long tern benefit of being debt free, and won't argue the long term market return vs the rate on the loan. But here we have the probability that OP is not investing at all. It may take $2000/yr to his 401(k) capture the match (my 401 had a dollar for dollar match up to first 6% of income). This $45K, after killing the card, may be his only source for the extra money to replace what he deposits to his 401(k). And also serve as his emergency fund along the way." Sure it is quite easy depending on income.  If one receives a bonus that is high in relationship to their income, it is very easy to max out a 401K prior to when one intended.  The later in the year such a bonus occurs the more likely that one will max out prematurely.   If one only has a single employer in the year, the custodial company will not accept amounts above the max, so one need not worry about that case.  If there is more than one employer, a refund is typically issued with the appropriate tax withheld.   Assume that a person makes about 60K per year.  They intend to put 12k into their 401K, thus have their contribution set to 20%.  By the beginning of September, they have 8K into their retirement, but they also receive a bonus of 50K.  Their 401K contribution for that bonus will be 10K, and thus they have maxed out their individual contribution for the year. So they will not be able to contribute for the rest of the year, including the first paycheck in September.  They will miss out on any match that the company may supply.  While that sucks, it should be relieved by the bless of receiving such a large bonus. Employer matches (even for Roth 401Ks) are put into traditional 401K accounts and are treated as pre-tax income.  Traditional 401K plans are tax deferred accounts, meaning you won't owe any taxes on it this year, but will have to pay taxes on it when you take the money out (likely after retirement). 401K contributions (including the match) are reported to the IRS and are entered in box 12 on the W2 form. "The company itself doesn't benefit. In most cases, it's an expense as the match that many offer is going to cost the company some percent of salary.  As Mike said, it's part of the benefit package. Vacation, medical, dental, cafeteria plans (i.e. both flexible spending and dependent care accounts, not food), stock options, employee stock purchase plans, defined contribution or defined benefit pension, and the 401(k) or 403(b) for teachers. Each and all of these are what one should look at when looking at ""total compensation"". You allude to the lack of choices in the 401(k) compared to other accounts. Noted. And that lack of choice should be part of your decision process as to how you choose to invest for retirement. If the fess/selection is bad enough, you need to be vocal about it and request a change. Bad choices + no match, and maybe the account should be avoided, else just deposit to the match.  Note - Keith thanks for catching and fixing one typo, I just caught another." The company match is not earnings. My company deposits 5% of my income into my 401(k) and it appears nowhere except on the paperwork for the 401(k).  To be clear, it doesn't appear on any paystub or W2.