401k match question

**sweeps** · 08-11-2008, 11:29 AM

What the person probably meant was if you max out your 401k ($15,500 or whatever) before the end of the year, your contributions automatically stop. If your contributions stop, then your company will stop contributing the match to go with it.

This only applies to people who (a) are able to contribute enough to hit the max, and (b) work for a company that matches per pay period, rather than in a lump sum at the end of the year.

**jIM_Ohio** · 08-11-2008, 12:07 PM

Sweeps took my answer.

Matches are given month to month (meaning if you do not contribute to 401k that month, you get no match that month). So make sure the $15,500 is not reached until that second or third paycheck in December.

Some numbers for you:

Assume match is 50% for first 6% contributed (so if you put in 6%, company pays you 3%). Also assume person gets paid 24X per year (2X per month).

A Person earns $155,000 and contributes 10% to their 401k. They max the 401k on their very last paycheck and get the match each month because they contribute each month. Person gets $4650 in matching funds.

That person gets a 4% COL adjustment for following year ($6200). New salary is $161200. If they kept the 10% contribution their 401k contributions would be

$13433 per month 10% to 401k is $1343 (match is $402.99)

In November the 401k totals at end of month would be 11*1343 ($14773) and the match would be $4432.89.

On the first december paycheck only $727 could be contributed. $727 is only 5% of the salary that month, so the company would only match 50% of that ($363). The second pay period would not have any 401k contribution and they would lose the entire $402.99 match for that pay period.

Aside-
Tell me which blog- I have a guess, but would like to know for sure. I noticed a new blogger giving real bad investment advice, I called him on it, and he deleted my blog posts.

**responduser** · 08-11-2008, 10:40 PM

Originally posted by LivingAlmostLarge View Post

I was reading someone's blog and they reccomended not maxing out the 401k because you wouldn't get the match above the maximum annual contribution limit?

Yes it is right. Your contributions stop, when you reach the maximum limit.

**atomicrc11** · 08-12-2008, 03:07 AM

My previous employer matched $750 per quarter. If you hit the max before the end of the year, they would continue matching up to $750 per quarter. The stipulation for this was you had to be contributing 6%. If you maxed it out earlier by contributing 10%, then you didn't get the match after your contributions stopped.

**MonkeyMama** · 08-12-2008, 05:20 AM

I just had to add not all matches are monthly. So you have to really understand your own 401k plan. They can really differ.

**cooliemae** · 08-12-2008, 07:50 AM

For those of us getting matched every 2 weeks...

Example: Over 26 pay periods, employee A wants to put away $600 per paycheck into their 401k with the employer matching the first $300.

At this rate employee A will reach their contribution limit in pay period 23, which would cost them $900 in employer matching contributions.

Employee B puts $519 away each pay period, therefore gaining the extra $900 in employer matching contributions.

**Gruntina** · 08-12-2008, 08:42 AM

I am lucky that our Payroll department actually watch out for our contribution hitting the max and stopping our payments for the remainder of the year. They do factor in the matching program. This helps much as sometimes I do overtime hours and I do not have to worry about the calculation on my end.

**LivingAlmostLarge** · 08-12-2008, 08:57 AM

So the match Gruntina counts towards the $15.5k?

**Gruntina** · 08-12-2008, 09:54 AM

Originally posted by LivingAlmostLarge View Post

So the match Gruntina counts towards the $15.5k?

Sorry I was not clear at all. The match is additional to the max. So if I contribute the full max, I would still get the company's match on top of it.

Bonus, overtime hours, cash incentives, do automatically get contributed in the 401k as my part of the contribution and not the company's match.

**jIM_Ohio** · 08-12-2008, 10:28 AM

Remember that 401k limits are based on Individual contributions.
Company contributions (match) fall under a different set of rules.

If you look at the rules for each, you will see:

Personal contributions are $15,500 or $20,500 depending on age.
Company contributions could be up to 25k I think- when I was looking at a solo 401k it appeared i could match more than 100% of my own contribution.

**Like2Plan** · 08-12-2008, 03:22 PM

Originally posted by cooliemae View Post

For those of us getting matched every 2 weeks...

Example: Over 26 pay periods, employee A wants to put away $600 per paycheck into their 401k with the employer matching the first $300.

At this rate employee A will reach their contribution limit in pay period 23, which would cost them $900 in employer matching contributions.

Employee B puts $519 away each pay period, therefore gaining the extra $900 in employer matching contributions.

cooliemae,
I'm confused. 401K max contributions for 2008 is $15,500.
Wouldn't employee A reach $15,600 in pay period 26 (26 X600)? (Their pp26 contribution would be 500 vice 600).

and Employee B would have only contributed $13,494 by pay period 26 (26 X 519) ?

**jIM_Ohio** · 08-12-2008, 04:43 PM

Originally posted by Like2Plan View Post

cooliemae,
I'm confused. 401K max contributions for 2008 is $15,500.
Wouldn't employee A reach $15,600 in pay period 26 (26 X600)? (Their pp26 contribution would be 500 vice 600).

and Employee B would have only contributed $13,494 by pay period 26 (26 X 519) ?

Correct on employee A- 26*596-$15500 (some rounding done).

The match is NOT part of employee contribution. There is a yearly max company can put in for employee (I think it's around 25k) which the match counts against.

Verify the corporate contribution max in IRS documents, I am not a tax advisor or accountant.

**jIM_Ohio** · 08-12-2008, 04:54 PM

Let's add one more issue to discussion. If a person is close to maxing the 401k

(10% contribution if you make $155,000 or 20% contribution if you make $77500)

then you will be doing considerable tax planning (probably) in both cases. This means you will spend some time in November and December running a sample tax return (if you don't, you should) for following year to possibly do some pre Dec 31 tax moves.

Pay January Mortgage payment
Take a capital loss on an investment
Make a charitable contribution

If you are so close to max that you are close to maxing, my advice is to stay under Jan-Nov, then increase the Dec deposit. For example if you make
$180,000 and want to max 401k, realize the $15,500 is 8.6% of $180,000. In January-November contribute 8% to 401k. 8% of 180,000 is $14400 ($1100 short of max)

180k is 15k per month
8% of 15k is $1200
11 months @ $1200 is $13200 ($2300 short of max)
In December bump the contribution up to 16%.

If you get paid twice in December ($7500 each), then the first paycheck will have a $1200 deposit.
The second paycheck can only deposit $1100 by law.

The only downfall to this strategy is if the company matched more than x% of the first 9% (or more if 9% is higher). You would be missing out on that match.

If you begin to realize the employees which make 180k are the ones which influence the 401k benefits, you now realize why matches are only on first 6-8% of salary- any higher and the executives could not fully realize the full benefit.

401k match question