Smart Money Podcast: Protecting Your Privacy, and Front-Loading a 401(k)

Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions.

This episode starts with a discussion about how to protect yourself from being tracked by websites and apps that want to use your personal data.

Then we pivot to this week’s money question from a listener's voicemail about maxing out a retirement account:

“I have a question about my 401(k) match. I have a goal to max out my 401(k) this year, so I was thinking of increasing my contribution amount early in the year, so that I could max it out early and then have larger paychecks towards the end of the year.

“My question is regarding the match. Since 401(k) contribution limits are based on what I contribute and not what my employer contributes, if I max everything out what I'm allowed to contribute and then I can no longer contribute from my paycheck, will I be missing out on the employer match for the second half of the year, if I max it out early? Let me know. Thanks.”

Check out this episode on any of these platforms:

• Apple Podcasts

• Spotify

Our take

Many companies harvest your personal information to sell for profit, which makes protecting your privacy online a challenge. There is only so much you can do on your own, but those steps are worth taking. Consider disabling location on your devices, or for at least a few of your apps. Try services such as DuckDuckGo, Brave and Firefox, which build privacy into their platforms. Also contact your elected representatives and let them know if you’re concerned about privacy.

When it comes to saving for retirement, investing through a 401(k) is great, especially if you contribute enough to take full advantage of any match your employer offers. Maxing out your 401(k), or contributing the max amount allowed per year, is even better.

If you’re looking to take your 401(k) game to the next level, front-loading may be something to consider. Front-loading a 401(k) helps you get your dollars into the market at the start of the year — allowing you to take advantage of an extra 12 months of growth.

However, front-loading may come with an unexpected cost. You may miss out on some of your employer match, because some retirement plans only match contributions during each pay period that you contribute.

You’re less likely to miss out if your employer offers a true-up provision. In that case, your plan administrator determines how much the company match should have been if you had contributed evenly throughout the year and then contributes the difference the next year. This allows you to receive the same amount of money from your employer match that you would have if you had contributed throughout the year.

Front-loading gives you an extra year of compound interest growth, but your paychecks will be significantly smaller during the time period in which you’re front-loading. You’ll also likely have to work with your plan administrator to make sure everything runs smoothly — and that you actually receive your true-up money the next year. (Check out our compound interest calculator to see how much your money can grow over time.)

Front-loading may be worth considering if you can comfortably do so without becoming financially strapped; your employer offers a true-up provision; and you can remember to check in with your plan administrator. However, contributing at a more regular cadence is fine, too.

Our tips

• Contribute for a match: If you have a 401(k), aim to contribute at least enough to get your employer match.

• Diversify your contributions: Consider having savings in retirement accounts with different tax treatments.

• Ask about your specific plan: Front-loading may mean you miss out on your employer match, so talk to your plan administrator before making any decisions.

More on investing from NerdWallet:

How to Invest in Stocks

What Are Bonds and How Do They Work?

Mutual Funds: What Are They and How to Invest

Have a money question? Text or call us at 901-730-6373. Or you can email us at [email protected]. To hear previous episodes, go to the podcast homepage.

Episode transcript

Sean Pyles: Is protecting your privacy too hard, or is it just pointless? Welcome to the NerdWallet Smart Money podcast, where we answer your personal finance questions and help you feel a little smarter about what you do with your money. I'm Sean Pyles.

Liz Weston: And I'm Liz Weston. Let the Nerds answer your money questions. You can call or text us at 901-730-6373. That's 901-730-NERD. Or email us at [email protected].

Follow us on all your favorite podcast platforms to get new episodes delivered to your devices every Monday. And if you like what you hear, please leave us a review and tell your friends.

Sean Pyles: In this episode, Liz and I are talking about the smart way to max out your retirement accounts. But first, we're going to talk about her recent column, “Tweak Your Tech Settings to Protect Your Privacy,” which sounds encouraging, but Liz — from my understanding, you got pretty discouraged doing the research for this.

Liz Weston: Oh, I did. And so, so discouraged. I mean, I know something about privacy, and I know something about how much data is being collected. But once you really get into it, you see why all the privacy experts are such doom-and-gloomers.

Basically, all this data is being sucked up about you and kept in perfectly legal databases. And having all this data means that advertisers not only target you and have their ads follow you from site to site, but they can manipulate people and figure out how to get them to spend more. They're trying to maximize profits so one person will spend much more than someone else. People who are struggling financially are getting targeted by predatory lenders and other seedy companies.

And then if there's any kind of database breach, suddenly all these bad actors are buying up your information for a buck or two and using it to scam you, to impersonate you. It's really pretty awful.

Sean Pyles: Yeah. Well, a lot of companies are interested in taking your information to essentially manipulate you.

Liz Weston: Yeah.

Sean Pyles: These companies know you better than you know yourself in some way because they're understanding how you're engaging with an app, the amount of time you're spending on it, the way you are navigating through it. And then they can use that information to try to sell you things or suck you further into their platform.

Liz Weston: Yes, and it's being used in politics on both sides of the aisle. We're really only starting to understand how this is working, but no matter what your politics, they're being used against you to manipulate you. So there's a whole lot of reasons to be worried and discouraged.

Sean Pyles: And a whole lot of reasons to maybe just put your phone down and go for a walk in nature every once in a while. That sounds kind of nice.

But now that we are pretty acquainted with the risks of having our information tracked, what can we do to limit this?

Liz Weston: Well, fortunately, there are some real and significant ways that you can get back a little bit of your privacy, and a lot of them have to do with location tracking.

A few years ago, there's this wonderful article that The New York Times did that basically took what was supposedly anonymous data and tracked down the individuals involved, like children being tracked to schools and then after-school activities. And there's a woman who was a nurse going to her hospital and then a doctor’s visit and other places. So that's all a little bit scary, and really it's none of anyone's business where you're going.

And it's fairly easy to turn off the location tracking. You don't have to turn it off for all your apps; some of them are not going to work, like Google Maps, if you turn that off. But a lot of them do.

And basically just try it out. I mean, see what breaks and what doesn't. If it does "break" — if it won't work without your location — it will ask you, and you can easily set it back up.

Look at everything that's tracking you and shut down access for the apps that really don't need it.

Sean Pyles: And sometimes you'll be really surprised by which apps, that have nothing to do with your location, do want to know where you are and when.

I have this bad habit of, whenever I have a flight, I'll download like three dozen games on my phone just to occupy me when I'm in the air. And, every so often, I'll go into that privacy part of my phone — location tracking part of my phone — and I will see that some of these games are following me around and, as you described, selling my information.

So that, for me, is always very alarming. And it makes me just want to delete all the games and the apps that I'm not actively using on my phone.

Liz Weston: Yeah, I think a lot of those games — that's their primary purpose is to suck up data about you.

If you have an iPhone, by the way, and you've updated to iOS 15, check out something called the “App Privacy Report.” Basically, turn it on and let it run, and you will be amazed at which apps are tracking you and the kind of data that they're picking up about you.

We need to be constantly checking our privacy settings to make sure that they haven't been turned back on.

And that was something else the privacy experts mentioned — is that for these apps and websites to keep shooting requests at you, it's really easy to click on something just to make that pop-up go away. And then you might have answered it correctly and protected your privacy 35 times. Once in your rush, you're going to accidentally give it permission, and then everything's turned back on. So you have to constantly be vigilant about these kind of things.

Sean Pyles: One thing that stood out to me in your column as well is the idea of personalized ads, and how it's sold to us as something that is beneficial. And, in fact, I think fewer personalized ads in front of us is a greater thing for our budgets. Because that means that we are not being as actively manipulated by the companies that know us, again, better than we know ourselves.

Liz Weston: Yeah, I don't think personalized ads is something I care about, so I try to turn it off wherever.

Also, if you have a Gmail account — any kind of Google account, YouTube, whatever it is — you also want to turn off Google's location tracking. And I give some instructions for how to do that, for exactly the reason that you're talking about.

If you see those ads following you around the internet, that means way too much information's being sucked up about you. So you want to turn off the location tracking and also wipe your search and your app history from your Google accounts.

And again, the settings are there. They're not that hard to find; you click through a few screens. But shutting that down is super important.

Sean Pyles: I'm also a big fan of ad-blocker extensions on my browsers because of exactly that. Well one, ads are annoying.

But two, I am a sucker for an ad in a moment of weakness, where I'm like, "Oh, well, that actually does seem kind of nice. Maybe I will buy it, because it's being advertised to me on every website that I go to." And I've fallen for it more than once.

So it's just a good reminder to set up some safeguards for yourself, so that you don't fall prey to these things.

Liz Weston: And speaking of safeguards, an additional one is to switch the browser that you're using. Switch to Firefox, to Brave, to DuckDuckGo. Those were not built to suck up information about you; they were actually built with privacy in mind.

Sean Pyles: I will say they are not all created equal, though. I've used a couple of these over the years, and some I found had really wonky search results. Others seemed pretty good, but every so often I'll run into a website that doesn't quite function as well as it would on a Safari or a Chrome, for example.

So I think that these are absolutely worth adopting, but maybe doing a little bit of research to see which one works best for you.

Liz Weston: Yeah, exactly. I've defaulted to DuckDuckGo. Every once in a while, though, I have to switch back to Google or Chrome to do something.

Try them out, see how they work for you. But again, these were built with privacy in mind, rather than getting all the data possible about you.

Sean Pyles: You also talk in your article about how there is only so much we as individual consumers can do. But one of the best actions we can take as individuals is actually to let our lawmakers know that we care about privacy.

Liz Weston: Yes, exactly. We are not in the European Union, which does have a right to privacy. And it's clearly something that is needed going forward, because there is very little that we can do to protect most of our privacy. What I've been talking about will protect a chunk of it, but not protect everything that needs to be protected.

So if you care about privacy at all — if you've been out there and seen some of the information that's being collected about you — I think you will want to reach out to your lawmakers and say, "Hey, let's do something about this."

Sean Pyles: Always great advice. Well, before we move on to this episode's money question segment, we have a callout for all of the parents that listen to Smart Money, and we know there are a lot of you. We are working on a new series about the cost of child care, and we want to know: How are you paying for childcare? Where does it fit in your budget? And have you had to make other sacrifices to make these costs work?

Leave us a voicemail on the Nerd hotline at 901-730-6373, or email a voice memo to [email protected], and tell us how you are making child care costs work for you and your family.

Liz Weston: Great. Well, I think we can get on to the money question.

Sean Pyles: Sounds good. This episode's money question comes from a listener's voicemail. Here it is:

Listener: I have a question about my 401(k) match. I have a goal to max out my 401(k) this year, so I was thinking of increasing my contribution amount early in the year, so that I could max it out early and then have larger paychecks towards the end of the year.

My question is regarding the match. Since 401(k) contribution limits are based on what I contribute and not what my employer contributes, if I max everything out what I'm allowed to contribute and then I can no longer contribute from my paycheck, will I be missing out on the employer match for the second half of the year, if I max it out early? Let me know. Thanks.

Liz Weston: All right. To help us discuss this question, we're joined by investing Nerd, Alana Benson.

Sean Pyles: Alana, our listener is clearly excited about maxing out their 401(k). But for folks who may not know, Alana, can you talk a little bit about the basics of a 401(k)?

Alana Benson: Absolutely. So, 401(k)s are great. They are employer-sponsored retirement plans, and they usually come with a pretty sweet benefit, which is the employer match. That's just when your employer matches what you contribute.

So, if your plan offers a 4% match, that means that as long as you contribute 4% of your salary, your employer will also match that 4%. And for just easy math’s sake, if you make $100,000 a year, and your employer matches 4%, as long as you put in $4,000 (or 4%), your employer will also kick in $4,000. That means that you get $8,000 total but you only have to pay for half of that.

Sean Pyles: It's basically free money.

Alana Benson: It's free money. It's awesome.

Sean Pyles: You don't get that often. All right. And what exactly does maxing it out mean when it comes to your 401(k)?

Alana Benson: So 401(k)s have contribution limits set by the government, which means that you can only put in a certain amount each year. You can't just put in however much you want. The 2022 401(k) contribution limit is $20,500, and those 50 or older can contribute up to $27,000.

So if you're trying to max out your 401k, that just means you're contributing the maximum amount for that year. Your employer's contribution does not actually count towards that personal max for you.

Sean Pyles: Got it.

Liz Weston: One thing I've heard from people is they get confused about vesting with a 401(k). When we're talking about company matches, sometimes you don't get access to all that money right away; it takes some time.

And the good news is that the money you put in, you always have access to. In other words, if you put in $5,000 and you leave that company, you get to take that $5,000 with you. How much of the company match you get to take might depend on their vesting rules.

Sean Pyles: OK, and that's typically determined based on how long you spend at the company.

Liz Weston: Yeah. Vesting just means you get a right to the money over time, so there you go.

The other thing we should always mention is that we're not investment or financial advisors and what we're talking about is for general informational purposes only.

Sean Pyles: Thank you for that disclaimer, Liz.

Liz Weston: Yes.

Sean Pyles: So our listener seems to have a pretty clever plan for maxing out their 401(k), by front-loading contributions early in the year, and then reducing their contributions once they hit that maximum contribution amount.

That inevitably means that their paychecks will be smaller at the beginning of the year and then larger at the end of the year. Can you do that, Alana?

Alana Benson: Yeah. So I'll caveat that by saying that whether or not you can front-load a 401(k) will depend on your particular employer. So some might allow it; others might not. But if you can front-load, it will allow your money to get into the market faster, which means it will have longer to grow, which is a good thing.

And our listener alluded to the one downside, which is that your paychecks will definitely feel the difference when you're front-loading, so definitely be sure to do the math first and figure out if you can actually afford to front-load.

Sean Pyles: This also sounds suspiciously similar to timing the market. Is that going on here at all?

Alana Benson: I wouldn't say this is timing it. You know, timing it is going to depend on looking at the market and saying, "Oh, this is what's happening in the world today, so I bet right now it's a better time for me to put money in than a year from now."

But if you get your money in a year ahead of time, you know, over 30 years — if that's how long you have until retirement — it probably won't make that big of a difference. But it is still getting your money in a year ahead of time, and so you get an extra year of growth. But I wouldn't categorize this as timing the market. It's more just taking advantage of that extra 12 months of growth.

Sean Pyles: That makes sense.

Liz Weston: So our listener is mainly worried about whether or not they'll miss out on that critical employer match, since they won't be contributing from their paycheck for the second half of the year. Is that a concern they should have?

Alana Benson: So this will really depend on each person's 401(k) plan, kind of like I mentioned. Some plans will only match contributions during each pay period that you contribute, so every time you get a paycheck. And in that case, you actually would be missing out on some of your matching dollars, which is something that we definitely want to avoid.

But some 401(k) plans have what's called a true-up provision. And this means that at the end of the year, the planned administrator will determine how much the company should have matched you, if you had contributed evenly throughout the year. And then the company will then just contribute the difference the next year.

So, really, it will just depend on your plan. Talk to your administrator and specifically ask about their policies on front-loading so that you don't miss out on your match.

Sean Pyles: OK. And, you know, I'm thinking that our listener’s plan could be a pretty savvy way to front-load their 401(k) contributions.

But I'm also beginning to see some potential trade-offs — one of which you just alluded to, which is the added administrative work of changing your contributions, making sure your employer will even allow you to do this. And all of that administrative overhead sounds like more work than I personally am willing to go through.

What do you guys think about any other trade-offs?

Alana Benson: Well, the added administrative work is definitely something, because we're human. We're not perfect, and so if you want to do this, it means you need to be in the driver's seat. You need to check in with your administrator. Maybe the next year you need to follow up if you don't see that true-up provision coming through, if you don't see that money coming back to your account.

So that means you'll just really have to be on the ball and take accountability for your own money. And for some people, that's second nature. But if that's something that you struggle with, it might not be worth it if you forget to let your administrator know to pay you the rest of your employer match.

Sean Pyles: Right.

Alana Benson: And it could also make managing a budget more difficult because your net pay will just change depending on how much is actually being contributed.

And then, obviously, the big one: If you do actually miss out on matching dollars — if your plan doesn't have this true-up provision — I mean, as we said, this is free money; you don't want to miss out on it.

Sean Pyles: And one thing that could be a potentially controversial take is that maxing out a 401(k) isn't actually the best use of someone's money. You might not be able to multitask and meet other financial goals.

If you're shoveling all of your money into a 401(k), you may not be able to build up a down payment on a house. And if all of your money is going into this one retirement account, that might prevent you from contributing to something like a Roth IRA that has a different tax structure that could help you in retirement.

Alana Benson: You just want to make sure that you have enough money to live your life. You know, if you're doing everything you can to maximize what you can do with your 401(k), that's one thing. But if it's creeping into the rest of your life and making it so that you don't have room in the budget for other things, that might be something to consider, too.

Liz Weston: Well, I'll make the argument from the other side. Especially if you're younger and you can do this, maximizing your retirement contributions early on gives you so much more flexibility later on. The earlier you get that money in, as Alana said, the more it can grow.

And it just gives you more freedom to take a sabbatical, stay home when you have kids, do all kinds of other things — maybe even retire early. So I get that you don't want to put all your money into retirement, but I like the idea of maximizing where you can.

Alana Benson: Yeah, it's all a balance.

Liz Weston: Yeah.

Sean Pyles: Yeah. And I think there are ways to balance your 401(k) contributions with other retirement contributions to help you really max out what you're contributing, but doing it in a really savvy way. Some financial advisors will recommend that you contribute enough to your 401(k) to get the employer match, and then moving other funds that you would contribute into a Roth IRA or something like an HSA.

Liz Weston: We constantly talk about this, but it's really important to have money in different tax buckets when you get to retirement, because that really helps you manage your tax bill.

If you put all your money into pre-tax vehicles like the 401(k), all of your withdrawals are going to be taxable, and there's also required minimum distributions that can mess you up and throw you into a higher tax bracket.

Anyway, the bottom line is: You do want money in different tax buckets if you possibly can, and that's why advisors suggest doing it this way.

Alana Benson: Yeah. The one caveat I'll make to that, too, is that obviously that's a different situation if you have a Roth 401(k) because then you are getting that tax advantage in the form of your 401(k) as well.

Liz Weston: Yeah, good point.

Sean Pyles: Another thing that folks might want to consider is contributing to an HSA. It's a health savings account that allows you to invest directly from the account and use that money also for health-related expenses.

HSAs offer a triple tax advantage, which means that the contributions are tax-deductible; growth is tax-free; and distributions are tax-free when used for a qualified medical expense.

Liz Weston: Right. And they're different from FSAs, which are also a way to save for medical expenses, in that you can roll the money over from year to year. This is what allows you to be able to invest.

Sean Pyles: Yeah, and for listeners who have not checked it out, we actually recorded an episode with Alana about exactly this subject, so check that out in our archives. Alana, do you have any other thoughts around maxing out retirement contributions?

Alana Benson: The most important thing is just contribute. It's maybe stressful to hear about people maxing out their accounts and you think, "Oh, wow, I'm really far away from doing that."

That doesn't matter; just contribute. And maybe if you don't have the means to contribute to get your employer match, just work up to that. There's nothing to feel bad about, and just remember that where you're at is OK and that saving for retirement at any rate is a good rate.

Sean Pyles: And the sooner, the better. I talk with some friends who are a little on the fence about this sometimes. And I try to convince them that the earlier you do it, the more time you have for these funds to grow, the more time you have to take advantage of compound interest.

And you will thank yourself later on. You'll have less to catch up on down the road.

Liz Weston: Yeah.

Alana Benson: Exactly.

Sean Pyles: Well, Alana, thank you so much for talking with us today.

Alana Benson: Thank you for having me.

Sean Pyles: Now let's get on to our takeaway tips. First up, contribute for a match. If you have a 401(k), aim to contribute at least enough to get your employer match.

Liz Weston: Next, diversify your contributions. Consider having savings in retirement accounts with different tax treatments.

Sean Pyles: Lastly, ask about your specific plan. Front-loading may mean you miss out on your employer match, so talk with your plan administrator before making any decisions.

Liz Weston: And that's all we have for this episode. Do you have a money question of your own? Turn to the Nerds, and call or text us your questions at 901-730-6373. That's 901-730-NERD. You can also email us at [email protected] and visit nerdwallet.com/podcast for more information on this episode.

Remember to subscribe, rate and review us wherever you're getting this podcast.

Sean Pyles: And here is our brief disclaimer, thoughtfully crafted by NerdWallet's legal team. Your questions are answered by knowledgeable and talented finance writers, but we are not financial or investment advisors. This Nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.