Direct Deposit Experiment

I’m going to try an experiment with my April paycheck and see how it goes. Currently, my paycheck goes like this: Amount I see = gross pay – income taxes – medicare tax – social security tax – dental and medical premiums – FSA contributions – 401(k) contributions and that full amount goes into my checking account. I then have an automatic transfer set up of $250 to my car replacement fund and I do a manual transfer to the down payment fund each month. I’m going to experiment starting with my April paycheck and split up my direct deposit as follows:

  1. $3,800 (my estimated month’s spending plan) to my checking account
  2. everything else to my down payment savings account

I will still calculate how much “extra” is in my checking account at the end of each month and manually send that to the down payment savings account or something similar, but I will set the normal savings amounts on real auto-pay. Splitting my paycheck up seems a lot less complicated than my current system of some manual and some automatic savings transfers for AFTER the paycheck is deposited.

If my rent goes up, then I can adjust how much goes to my checking account. Once I’ve maxed out my 401(k) for the year (with part of November’s paycheck) or I’ve hit the Social Security tax maximum, more money will magically go to the down payment savings account. (When I buy a condo, I will reset the direct deposit experiment.)

I’m really excited to see my down payment savings account go up faster with the raise I’m getting starting this month!

Readers, does your employer let you split your paycheck? If so, do you? How do you split up your paycheck?

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18 thoughts on “Direct Deposit Experiment

  1. Leigh, why do you plan to max out your 401k in November? Assuming you get an employer match, if you max in November you will either forgo a Month’s worth of your employer match or you will have to contribute the minimum for the match with after-tax dollars (assuming your plan allows for this). It is usually advised to try and level out the 401k contributions so you get the maximum match each month.

    • Because last year, my December contributions posted in January and I lost that contribution room. My employer will top up the match I am missing in March, so I would be out under $200 if I max it out in November and then leave before March.

      I haven’t quite gotten a straight answer on what happened with December’s contributions last year. The 401(k) administrator said that the December contribution counted towards the 2012 limit. My employer said it would be just fine. So I figured that $1500 or so in contribution room being tax-deferred is more valuable than under $200 in matching. Plus, for various reasons, I don’t plan on leaving before March.

      • The answer is in your 2011 w2 form. That form clearly tells you how much was withheld for 401k and can answer if your Dec contributions counted for Dec 2011 or Jan 2012. If your paycheck was dated in Dec 2011, then it should have counted for 2011 tax year. w2 will have the answer.

        • Thanks Pam! My W-2 shows the full $16,500 as having been contributed last year!

          But then if I look at my last pay stub, it shows that I have put in about $4,500 so far this year, but the administrator’s website shows contributions of $6,000 this year, which is why I’m worried that December’s contribution counted in 2012, not 2011.

        • sounds wonky and sketchy at best. Shouldn’t it be in the SPD for your 401k when contributions are made relative to pay day? I would tell them you need a straight forward answer (and you deserve one!).

        • Leigh, this has happened with my employer too and the answer I got was that paycheck withholding date is what counts. My 401k administrator has taken time to invest the proceeds, but that has not mattered. The next year, full 401k contribution was withheld from my paychecks. I think you will see that with your employer too.

          Your admin website reports $6000 because they received the funds in 2012. Remember it is your w2 that gets reported to IRS and it is your w2 401k amount that is pre-tax (assuming you are not contributing to ROTH 401k). I don’t believe your 401k admin reports anything to IRS regarding 401k.

          But contact your employer’s Benefits dept and get a straight answer.

        • I’ve decided at this point that I’m not super concerned about it. With the % that I set my contributions at for the rest of the year after my raise, if last December’s contribution counted in 2012, I will max it out in November and if not, I will max it out in December. I think that works out perfectly because either way, it is getting maxed out this year! :)

          I am contributing pre-tax.

  2. The only things that are taken out of my paycheck are taxes and my health insurance premium. My employer is too small to offer anything else. I like to split up my check manually and pay my bills manually. Proabably not the most efficient way to do it, but doing so forces me to check over my bills and accounts.

    • That has been my plan up until this point, but with the crazy raise I got, I decided to make sure that my checking account doesn’t see it and that I save as aggressively as possible for a down payment.

  3. Sounds like a good idea!

    I don’t think my employer offers this (but I’ve never asked) but I used to do it manually when I was single. I had my paycheck deposited to one account and then I transferred my budgeted discretionary spending money (groceries, going out) to my other checking account and just used that debit card.

    • I’ve been doing it manually for the last several years, so I’m going to give this a whirl. For awhile, my insurance premiums were deducted from a checking account other than the one I used regularly, so I split my paycheck up for that. I think that splitting it up for savings is an even better idea!

  4. My employer offers this, but I’ve never taken advantage… I should but I’m just not organized enough yet =\ it’s one of those awkward things where as a PF blogger you realize there’s an opportunity to be better with your money and you’re just not doing it lol

    • Haha well I am just trying it now and I’ve been with this employer for over two years :P I thought that the awesome raise I got was a great time to try this out! It sure seems easier in your head to do it manually, doesn’t it? That’s what I’ve been trying to tell myself for ages…

  5. I do not think my employer offers this either. Currently, our savings method looks pretty much like what you are currently doing. This new plan seems like a great-extreme version of pay yourself first. It will be great to see how your experiment works out!

    • How is it extreme? Because I am putting the spending plan money into my checking account and *everything else* into a savings account at another financial institution rather than putting a specific amount into savings?

      I’m hoping that I’m going to think I’m a crazy person for not having come up with this plan years ago. Why wait on the multiple business day transfers to Ally or ING when you can direct deposit and earn interest faster? I’m pretty sure I’m certifiably insane for not trying this before now.

  6. I do this! The main things I use it for is auto contributions directly into my Roth IRA. I also deposit half my rent into a money market fund, then just use that fund (which has check writing privileges) to pay rent. My rent is kind of high and it always bugged me to have that money intermingled with the rest of my money.

    The rest is deposited into checking. Actually, I do put some into savings automatically, but that is kind of a slush fund, and I just do it because I get to use up to 4 accounts. But in general, my paychecks head towards retirement savings & living expenses for both of us, while T provides most of the cash savings. (he’s paid more irregularly/less predictably)

    • Auto contributions into your Roth IRA is an awesome way of using this! My income is unfortunately now too high to make direct contributions to a Roth IRA, so if I’m going to do that, it’s better to do the whole $5,000 in one lump sum.

      Your rent is actually lower than mine :) With the utilities billed with my rent, my rent is almost $1,800 now :/

      Up to 4 accounts is awesome! The website for mine doesn’t specify the number, but it would only let me do 3 with the configuration I had.

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