UnThreaded | Threaded | Whole Thread (3) | Ignore Thread Prev | Next
Author: txbuckeye Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76418  
Subject: 401-k & Employer Matching Date: 3/20/2000 2:04 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 0
Not sure if this is the correct forum for this, but I bet someone who frequents this knows the answer. It has to do with the way employer matching works with 401-ks. My basic question is this: If an employer makes matching contributions up to a certain percentage of pay contributed to a 401-k, can an individual miss out on matching funds by hitting the IRS maximum contribution early?

Consider this example (using the 1999 maximum of 10,000 and some easy round numbers):

Person X makes 10,000 per month and decides to contribute 10% to a 401-k. The company matches 50 cents on the dollar up to the first 6%. So basically, each month, the person contributes $1,000 and the company matches with $300 (50% of 6% of 10,000). After 10 months, person X hits the annual maximum of $10000 and can no longer contribute. End result for year: $10,000 of his money and $3,000 of the company's money for a total of $13,000 saved.

Now let's say person X decided he wanted to get in the habit of saving more so decided to contribute 20% of his pay to the 401-k with the intention of saving the $2,000/month via other means even after he hit the annual maximum. In this case, he contributes $2,000 per month and the company still contributes only $300. After 5 months, he hits the maximum, having contributed $10,000 while the company has only matched at $1,500. End result for the year is 11,500 instead of 13,000.

What is wrong with this logic? Should you try to hit the yearly maximum as close to the end of the year as possible?



Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (3) | Ignore Thread Prev | Next

Announcements

The Retire Early Home Page
Discussion on accelerating retirement day.
Foolanthropy 2014!
By working with young, first-time moms, Nurse-Family Partnership is able to truly change lives – for generations to come.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Post of the Day:
Macro Economics

Looking at Currency Ratios
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement