No. of Recommendations: 5
RoadScholar5: "I think I am missing something
With respect to 401K plans....

I have always understood employer contributions to be based on a fixed percentage, calculated against the amount the employee contributes."

I believe that there are other methods for employers to use to calculate contributions.

"I always contribute the maximum the law allows me to contribute to such plans."


"Lately, I have tended to accelerate contributions to reach the max earlier in the year, just to get the amounts in sooner, so they compound sooner."

That is a mild form of market timing, but not a huge issue.

"A co-worker insists that it is better to spread contributions out over the entire year, so as "not to lose any of the employer match".

She can't fully explain it."

It all depends upon what your plan states. Another regular poster has posted about this issue, and best as I understand, his/her employer caps the monthly contribution and only makes a matching contribution for months in which the employee contributes. Under this sort of plan scenario, if you hit your legal maximum at the end of June, you will only receive 1/2 of your "expected" match.

I have never had a plan like this, mostly because most employers of mine have had zero match, so I am not more up on the details.

"Now, if employer contributions are based on a percentage, don't I receive the same amount of match regardless of when my contributions go it - sooner in the year, rather than later or vice versa?"

And there are no other caps in place, yes.

You need to check into your plan with the Plan Administrator.

Regards, JAFO
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