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Leanne writes:

Currently I invest 10% pretax and get a 50% match. Now, the company is proposing that it matches 100% of the first 3% and then 50% of 4% for a total of 7% matched funds..supposedly I get the same return only spending 7% as I did at 10%. I am not convinced this is a good thing. I think I lose something in pre-tax dollars and matching funds or something..Any ideas? Or is this really a good change? I look forward to the replies!

Before, with 50% match of your 10% deduction, you got 5% of your salary for free plus the 10% deduction for a total of 15% in 401(k) investment.

Now, if you deduct 7%, you get 3% plus 2% to equal 5% of your salary for free plus the 7% deduction for a total of 12% in 401(k) investment. So yes, you've lost 3% although the match is the same. My guess would be that your employer is actually trying to be more generous -- giving away more matching money since it's likely that some employees were contributing less than 10% of their salary into their 401(k).

I think the main question is whether or not you can continue to deduct 10% even if you're not getting the match beyond the first 7% of your contribution. If so, then you'll still be getting the total of 15%.

Actually, I would encourage you to consider even going above 10% if that's possible. The tax-advantage is still tremendous, even without the match.

- BlueAdept
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