How do we get to 18K in our 401k?

[cologero]

There are a few things you need to know - hopefully your HR department can help you!

First is how you designate your contribution - is it a percentage or is it a dollar amount. My job does a dollar amount so it's easy - I contribute 1/12th of the maximum every month. My husbands job has him do a percentage, and it's a integer number, so we have to pick a number that ends up maxing it out, which he does a few pay periods before the end of the year/

This brings up the second point - does your employer "true up" or not.

Nice employers don't punish their employees for maxing out their 401k early and will give you a "true up" match at the end of the year, so it doesn't matter if you max out a little early. If your company is a jerk and only matches on each contribution, you'll have to play with the numbers to try to hit it dead on with your last pay periods contribution.

Most places won't let you contribute more than the maximum so that shouldn't be an issue. The only issue is if you change jobs in the middle of the year. The second job doesn't know how much you already contributed so be careful unless you want to have to deal with getting some refunded which is a pain in the butt.

Thanks for posting this! You just made me think of something...
I was actually thinking of contributing 100% of my pay for a handful of pay periods beginning next year to hit the $18K max and be done with it for the year (I have enough savings to sustain that and I need to do some major catching up). But now you got me thinking, if my employer only matches up to 5% and they do not true up...would I actually lose 'employer money' if I didn't spread it out over the course of the year? The math doesn't seem to show that since 5% of 18K is static regardless, but I'm probably misinterpreting something

[corn18]

My company does not do a true up, so if I contribute $18,000 too fast, I miss out on a lot of match.

If you make less than $265,000 / year and your employer does not offer a true up, your best option to maximize the match is to spread the $18,000 over the entire year.

Tom

[BuckyBadger]

Thanks for posting this! You just made me think of something...
I was actually thinking of contributing 100% of my pay for a handful of pay periods beginning next year to hit the $18K max and be done with it for the year (I have enough savings to sustain that and I need to do some major catching up). But now you got me thinking, if my employer only matches up to 5% and they do not true up...would I actually lose 'employer money' if I didn't spread it out over the course of the year? The math doesn't seem to show that since 5% of 18K is static regardless, but I'm probably misinterpreting something

This has old limits, but it explains the problem if your employer doesn't true up.

http://ibd.morningstar.com/article/article.asp?id=584403&CN=brf295,http://ibd.morningstar.com/archive/archive.asp?inputs=days=14;frmtId=12,%20brf295

[disneysteve]

if I contribute $18,000 too fast, I miss out on a lot of match.

Can someone explain this because I've never really understood it. Of course, I've never had a 401k so that might be why.

If the deal is that the employer matches 50 cents on the dollar up to 6% of your salary, why does it matter how slowly or quickly you put that money in?

Let's say you earn 100K so 6% is $6,000. What's the difference if I put in $6,000 on January 2 and get a $3,000 match or if I stretch it out $500/month for 12 months and get a $250 match each month for a total of $3,000?

[corn18]

Can someone explain this because I've never really understood it. Of course, I've never had a 401k so that might be why.

If the deal is that the employer matches 50 cents on the dollar up to 6% of your salary, why does it matter how slowly or quickly you put that money in?

Let's say you earn 100K so 6% is $6,000. What's the difference if I put in $6,000 on January 2 and get a $3,000 match or if I stretch it out $500/month for 12 months and get a $250 match each month for a total of $3,000?

The issue comes down to matching per pay period. If you make $100k and get paid biweekly, your paycheck is $3,846. Say you withhold $3k each paycheck and your match is 5%. You will have $18k paid in and your contributions will stop. Your total pay during that period would be $23,076. 5% of that is $1,154. If your employer is nice, they will true up to the $6k. Mine is not, so I would only get $1,154.

Tom

[autoxer]

Can someone explain this because I've never really understood it. Of course, I've never had a 401k so that might be why.

It all depends on how the plan documents are written. Mine is just a 25% match of the first $1000 you put in, so it doesn't matter when you max out. I front load my contributions, this year I maxed out after 9 months of contributions.

Tomhole's plan documents were very poorly written.

[disneysteve]

Nice employers don't punish their employees for maxing out their 401k early and will give you a "true up" match at the end of the year, so it doesn't matter if you max out a little early.

So it sounds like some companies don't actually do a true match. To me, a match would mean every time I contribute, they contribute, but apparently that's not how it works. I guess that's what I'm not understanding. If the match isn't based on my contributions, what is it based on?

[BuckyBadger]

So it sounds like some companies don't actually do a true match. To me, a match would mean every time I contribute, they contribute, but apparently that's not how it works. I guess that's what I'm not understanding. If the match isn't based on my contributions, what is it based on?

Did you see this link I posted?

http://ibd.morningstar.com/article/article.asp?id=584403&CN=brf295,http://ibd.morningstar.com/archive/archive.asp?inputs=days=14;frmtId=12,%20brf295

It explains it pretty well I think. It's based on the percentage of your pay, not on your "contribution." A person who makes $50k and maxes out at $18 doesn't get as big a match as a person who makes $100k and maxes out at $18k.

This paragraph helps by thinking of it monthly:

Take an example: A worker who earns $10,000 each month saves 20 percent of earnings in a 401(k) for which the employer matches dollar-for-dollar up to 6 percent of earnings. That means that in the ideal situation, the worker would receive 6 percent of $120,000, or $7,200, in matching contributions. But by saving $2,000 each month, the worker will hit the $17,500 limit after just nine months. As a consequence, that worker might only get credit for nine months' worth of matching contributions, or $5,400, giving up $1,800 in potential matching contributions on the worker's behalf.

[cologero]

Did you see this link I posted?

http://ibd.morningstar.com/article/article.asp?id=584403&CN=brf295,http://ibd.morningstar.com/archive/archive.asp?inputs=days=14;frmtId=12,%20brf295

It explains it pretty well I think. It's based on the percentage of your pay, not on your "contribution." A person who makes $50k and maxes out at $18 doesn't get as big a match as a person who makes $100k and maxes out at $18k.

This paragraph helps by thinking of it monthly:

Take an example: A worker who earns $10,000 each month saves 20 percent of earnings in a 401(k) for which the employer matches dollar-for-dollar up to 6 percent of earnings. That means that in the ideal situation, the worker would receive 6 percent of $120,000, or $7,200, in matching contributions. But by saving $2,000 each month, the worker will hit the $17,500 limit after just nine months. As a consequence, that worker might only get credit for nine months' worth of matching contributions, or $5,400, giving up $1,800 in potential matching contributions on the worker's behalf.

Holy crap, this sucks! I was just about to contribute 100% of my pay for a handful of paychecks in Jan to get the maximum out of the way...well, I just did the math and I'd lose over $2K in employer contributions! I need to check with my company to see if they do a true up.

[mrpaseo]

I'm glad you all brought this up, we were planning on maxing the contribution amount to 75% of my wife's income into her 401k but when I look at it seems we would lose out on some match. We adjusted to 46% which is what it will take her to max out in 26 equal payments (Paid bi-weekly).

Thanks for the info. Just in case, we ordered the investment Enrollment kit so we can read it over again.

[rennigade]

I must have forgot to adjust my percentage that goes into my 401k since it changed to $18k/year. Im going to be short by approx $200 this year. Not a huge deal but now I cant say that I maxed my 401k. Fail.

[Randomsaver]

Aha! So you people are the reasons why the stocks trend up during the first half of the year and suddenly becomes volatile after.

[kork13]

I must have forgot to adjust my percentage that goes into my 401k since it changed to $18k/year. Im going to be short by approx $200 this year. Not a huge deal but now I cant say that I maxed my 401k. Fail.

My TSP ended up only getting $17815 this year... Boo hoo. Realistically, the extra could hundred dollars don't matter. In my mind, it mostly matters that I'm saving appropriately to get there. If the annual total doesn't end up at exactly the limit, so be it. I'm okay with "close enough"

[YLTL_Dan]

Did you see this link I posted?

http://ibd.morningstar.com/article/article.asp?id=584403&CN=brf295,http://ibd.morningstar.com/archive/archive.asp?inputs=days=14;frmtId=12,%20brf295

It explains it pretty well I think. It's based on the percentage of your pay, not on your "contribution." A person who makes $50k and maxes out at $18 doesn't get as big a match as a person who makes $100k and maxes out at $18k.

This paragraph helps by thinking of it monthly:

Take an example: A worker who earns $10,000 each month saves 20 percent of earnings in a 401(k) for which the employer matches dollar-for-dollar up to 6 percent of earnings. That means that in the ideal situation, the worker would receive 6 percent of $120,000, or $7,200, in matching contributions. But by saving $2,000 each month, the worker will hit the $17,500 limit after just nine months. As a consequence, that worker might only get credit for nine months' worth of matching contributions, or $5,400, giving up $1,800 in potential matching contributions on the worker's behalf.

Woww, thanks for explaining, I never realized that's how it worked. We decided mid-year in 2015 to max out my wife's 401k, so we had to bump it to 50% - and I thought there wouldn't be an impact. Oh well, glad we at least got it maxed, but we'll take this new info into consideration going forward.

[rennigade]

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