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Author: C2Reed Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76237  
Subject: 401(k) Article Date: 4/25/2001 11:11 AM
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There is a 401(k)gotcha! that isn't related to the law but rather to how fast highly compensated employees contribute to the plan. It cheats employees out of part of the matching contribution that they would have otherwise gotten had they contributed at a lower rate.

In a nutshell, it works like this: If a highly compensated employee (e.g. $104,000 annually) chooses to contribute at a rate of 15% per pay period, they will reach the $10,500 legal limit after the 17th pay period out of 26, after which they will no longer contribute. Their match of dollar for dollar up to 3% of pay will amount to $2,160, and they will have missed out on the 3% match for the last 8 pay periods of the year.


Pay Period 15 Percent 3% Co. 10 Percent 3% Co.
Match Pay Amount 401(k) Match 401(k)

1 $4,000 $600 $120 400 $120
2 $4,000 $600 $120 400 $120
3 $4,000 $600 $120 400 $120
4 $4,000 $600 $120 400 $120
5 $4,000 $600 $120 400 $120
6 $4,000 $600 $120 400 $120
7 $4,000 $600 $120 400 $120
8 $4,000 $600 $120 400 $120
9 $4,000 $600 $120 400 $120
10 $4,000 $600 $120 400 $120
11 $4,000 $600 $120 400 $120
12 $4,000 $600 $120 400 $120
13 $4,000 $600 $120 400 $120
14 $4,000 $600 $120 400 $120
15 $4,000 $600 $120 400 $120
16 $4,000 $600 $120 400 $120
17 $4,000 $600 $120 400 $120
18 $4,000 $300 $120 400 $120
19 $4,000 400 $120
20 $4,000 400 $120
21 $4,000 400 $120
22 $4,000 400 $120
23 $4,000 400 $120
24 $4,000 400 $120
25 $4,000 400 $120
26 $4,000 $- $- 400 $120

$10,500 $2,160 $10,400 $3,120
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