High Earners: Maximize Your 401(k) Match Using This Simple Tool - Rodgers & Associates
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High Earners: Maximize Your 401(k) Match Using This Simple Tool

High earners may need a strategy for getting the most from their employer match for their 401(k) contri­bu­tions. Let’s consider an over age 50 employee who earns \$216,660 annually (or \$18,055 monthly). Assume that the employer offers a basic match of 100% of partic­ipant contri­bu­tions up to 3% of pay, plus 50% of partic­ipant contri­bu­tions up to the next 2% of pay, so a 4% match if the partic­ipant contributes at least 5% of their own money.

An eager employee who wants to get in the maximum allowable contri­bution of \$26,000 (\$19,500 + \$6,500 over age 50 catch-up) early in the year, will sacrifice some employer match dollars, leaving free money on the table. Here is the math: If the employee contributes 24% of pay they will cap out at \$26,000 at the end of June, with an employer match of only \$4,333.20. They would be wiser to spread the contri­bution evenly over the course of the year at a 12% rate. Then they will receive \$8,666.40 in employer match, an additional \$4,333.20 in “free” money!

Over the course of 10 years this is an additional \$43,332! Smartasset provides a calcu­lator which can help you see the impact of different employee contri­bution percentages on the amount of your employer’s match. You can find it at smartasset​.com/​r​e​t​i​r​e​m​e​n​t​/​4​0​1​k​-​c​a​l​c​ulator.

Article origi­nally posted in September 2015