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!

Gross Income   24% Employee Contri­bution4% Employer Match   12% Employee Contri­bution4% Employer Match
January$18,055$4,333.20$722.20$2,166.60$722.20
February$18,055$4,333.20$722.20$2,166.60$722.20
March$18,055$4,333.20$722.20$2,166.60$722.20
April$18,055$4,333.20$722.20$2,166.60$722.20
May$18,055$4,333.20$722.20$2,166.60$722.20
June$18,055$4,333.20$722.20$2,166.60$722.20
6‑month totals$25,999.20$4,333.20
July$18,055$2,166.60$722.20
August$18,055$2,166.60$722.20
September$18,055$2,166.60$722.20
October$18,055$2,166.60$722.20
November$18,055$2,166.60$722.20
December$18,055$2,166.6$722.20
12-month totals$240,000$25,999.20$8,666.40

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