Hypothetical: Starting 401k deduction right before filing

[SMinGA]

This is hypothetical. Somewhat at least, I will probably face this question for real before the year is over.

I know that in general, 401k deductions and similar expenses are not questioned when you have a history of them before filing and the levels are not drastic. What about if the deduction starts right before filing - but only because that was when you became eligible?

Such as becoming eligible for joining/contributing to the 401k program in Nov/Dec, contributing 5% to get the max company match, and filing in Dec? I hate the idea of turning down free money, and a 5% employee contribution results in another 4% from the employer. We're not talking huge #s - only about $45-50 per month as this is on a 2nd/part time job.

[LadyInTheRed]

When my attorney was running my numbers, he initially told me to increase my 401k contribution from about $50 to over $200 (other adjustments eventually made that unnecessary). He said that the budget is looking forward, not back. He knows the trustee well and said she wouldn't have a problem with it. I'm sure this will vary by trustee.

[SMinGA]

Makes sense, thanks for commenting.

We are working on a mortgage mod, and if all goes well that will reduce our rate & payment, and therefore increase DMI. It will also lessen our priority debt as there will be no more mortgage arrears. Previously we were looking at a plan to cover priority debt/atty/trustee and a little (very little) to unsecured. But it would be a 60 month plan even though we're below median. (Could not afford enough to resolve in 36.)

If the mortgage mod lowers priority debt AND increases DMI, we'd be able to resolve all we must with a lesser payment in 60 or about the same payment in 36 except we'll have higher DMI due to the mortgage payment drop. 401k's are top of my list, have already had hubby restart his contributions. (Stopped them last year before I found a 2nd job.) I will also be able to do open enrollment for my primary employer's 401k at the end of the year. (They contribute for us automatically, I have never contributed on my own. Could not afford to!)

When my attorney was running my numbers, he initially told me to increase my 401k contribution from about $50 to over $200 (other adjustments eventually made that unnecessary). He said that the budget is looking forward, not back. He knows the trustee well and said she wouldn't have a problem with it. I'm sure this will vary by trustee.

[jacket]

Is it possible to increase the 401k contribution from 5% to 7% (3/4 months before filling chapter 13) to make DMI lower; And reduce back to 5% after filling/confirmed just to have extra funds on hand during the plan's tight budget? Or trustee will review the W-2s every year during the plan?

Thanks!

[NoTomatoCan]

Jacket - I would be careful with that for just the reason you mention.

Would you necessarily get noticed by the trustee? Maybe/maybe not. But it wouldn't be worth causing issues for yourself over.

[SMinGA]

I agree with NoTomato - risk is not worth the reward.

Beyond that, some plans are more limited in when you are even allowed to make adjustments. My husband's is thru Vanguard, he can change anything at any time and its effective in 1-2 weeks. My main employer, on the other hand, can only make changes once per year.

I would think, however, if you are looking at a 100% plan (or anything with high payback to unsecured) and you're only contributing 5% now, you may want to discuss with your attorney the prospect of increasing to perhaps 10% now & withhold at that rate for a few months before filing. (And leaving it there, would result in a slightly lower payment/less to unsecured - but leave your future a little more secure.)

[Lissy]

I had a similar situation. Started my current job early last year, but wasn't eligible to start contributing to 401k for several months. During my initial consultation with my atty, he told me to start contributing ASAP. I was eligible by then, but hadn't started because I couldn't afford it. I began contributing in October 09, filed in February 10 and the TT never mentioned it. But I only contribute a small percentage as well, so I think you should be fine.