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|Subject: Re: 401k matching||Date: 10/14/2011 3:36 PM|
|Author: Rayvt||Number: 69663 of 81362|
Something to watch out for:
Many companies do their match on each paycheck. If later in the year your contribution stops, so does their match. Even if you hit the IRS max contribution before the end of year.
5% of each paycheck is not the same as 5% of your total annual paychecks, if some have a 401k contribution and some don't.
My employer and supposedly many companies, do a "true-up" in January if this happens to you, and deposit the difference. I never trusted them to do this and to get it right, although I knew others who checked and said that they did it right.
Your case is a bit different, I think, and there are some missing details.
Is it a 1-for-1 match on the first 5% of your 401k deposit on each paycheck, but with a maximum annual cap of $3000 match? (Probably)
That would be: Your paycheck is $6000 and you contribute $300 (5%) and they contribute $300 (5%). They'd hit their cap in 10 months.
The question is does it make sense to have 5% deducted from my pay each month until I hit the max $3000 for the year and then drop my deduction for the rest of the year so that my overall outlay is the same for the year. In effect I would be front loading the contributions and receipt of the match into the first half of each year. vs. spreading it out over the whole year.
What you want to do is get as much company money as you can, as early as you can. That's free money. Free is good.
The generally accepted rule-of-thumb for retirement contrihutions is:
1st: The 401k until you've captured every bit of the company match.
2nd: A regular IRA -- IF and only if it is tax-deductable (it probably isn't).
3rd: A Roth IRA.
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