Found out I'm getting a 401k!!!

[disneysteve]

The regulars here have seen me post numerous times that I've never had a 401k. I'm always worked for small, independent medical practices. My first practice did have a pension/profit-sharing plan. When I left that job, I got a lump sum distribution that I rolled into an IRA. My current job of 16 years has no plan at all.

I found out today that the per diem job I'm starting this week does have a 401k. I knew they did but I though per diem employees weren't eligible but they are. In fact, they automatically enroll every employee with a 3% contribution and a 50% match. Of course, you are free to change your contribution (or opt out entirely if you really wanted to).

I checked and the contribution limit is still 50% of your salary. That's what it was when my wife worked for them. So I will log into my account and up my contribution to 50% as soon as I can. I'm getting every penny of matching funds that I possibly can.

[Nutria]

the per diem job I'm starting this week

on the new job.

Is that the modern term for "part time, with travel"

[Jluke]

congrats - this is like christmas morning for you; though I know you do not celebrate the holiday.

Max it out and let us know if you are happy with the investment choices.

[Petunia 100]

That's great news! Congrats.

[disneysteve]

on the new job.

Is that the modern term for "part time, with travel"

Per Diem and Part Time are not the same thing. I'm not entirely sure of the differences but PT has particular hourly requirements. At least as of now, PD does not. I can work as much or as little as I'd like. They may institute a minimum number of hours for PD employees but as of yet they haven't.

let us know if you are happy with the investment choices.

I'm actually already familiar with the plan because my wife worked for them for about 7 years and has a 401k account. The choices are fine. Probably no better or worse than anywhere else.

[Goldy]

Congrats Steve!!

Are you certain that you will get the full match by contributing 50%? I assume you would hit the max contributions pretty quick and might miss out on a lot of matching. Do they offer a true up at the end of the year?

[disneysteve]

Congrats Steve!!

Are you certain that you will get the full match by contributing 50%? I assume you would hit the max contributions pretty quick and might miss out on a lot of matching. Do they offer a true up at the end of the year?

Since I'll only be working a few hours per month, it shouldn't be an issue. I won't be contributing anywhere near the max even with a 50% contribution rate.

That said, how does that work exactly? Do they not match 50% of my contribution up to the max they provide? For example, if I put in $1,000, they put in $500. Or is that not how they do the match typically?

[Goldy]

Usually there is a cap so it's often something like 50% match up to 4% (matching) so any contributions after 8% are unmatched. Where people run into trouble is when they try and front load the 401k by contributing 30% for the first 3 months to hit the max limit early. The issue with this is that since the match is capped they are not getting as much from the match as they would if they lowered the contribution so they hit the max in December.

Like you said, with limited hours you should be fine but if you ever get close to the max it's something to start thinking about.

[disneysteve]

Usually there is a cap so it's often something like 50% match up to 4% (matching) so any contributions after 8% are unmatched. Where people run into trouble is when they try and front load the 401k by contributing 30% for the first 3 months to hit the max limit early. The issue with this is that since the match is capped they are not getting as much from the match as they would if they lowered the contribution so they hit the max in December.

I've never had a 401k before so I'm not clear on exactly how the match gets calculated. I've heard people say what you said about not getting the full match but I don't totally follow how that happens.

Let's say I make $1,000 during the first pay period. I contribute $500 to the 401k. They would match with $250, right? If the cap is 4% of my salary, how do they arrive at that number since there's no way to know how much I will earn for the year. Or is the cap on the match usually a set dollar amount?

[corn18]

Is your match 50% up to 4%?

The match is calculated per pay period. So, if you make $1,000 on a particular pay period and contribute 50% ($500), they will match 50% of 4% of your pay, which is 50% of $40 (4% of $1,000). So a whopping $20 match.

[disneysteve]

Is your match 50% up to 4%?

The match is calculated per pay period. So, if you make $1,000 on a particular pay period and contribute 50% ($500), they will match 50% of 4% of your pay, which is 50% of $40 (4% of $1,000). So a whopping $20 match.

Actually I just found out about the plan yesterday and haven't gotten all the details yet. I seem to recall from when DW was working there that it was 50% up to 6% of income so they would provide 3% in matching funds.

How do they figure out the cap on the match, though, if they don't know how much I'm going to earn during the year or how much I'm going to contribute?

[corn18]

Actually I just found out about the plan yesterday and haven't gotten all the details yet. I seem to recall from when DW was working there that it was 50% up to 6% of income so they would provide 3% in matching funds.

How do they figure out the cap on the match, though, if they don't know how much I'm going to earn during the year or how much I'm going to contribute?

They will keep matching on a per paycheck basis until you hit the IRS limit for your contributions ($18k plus $6k if you are over 50). Once you hit that limit, they will stop your contributions automatically.

[Jluke]

50% up to 6% of income so they would provide 3% in matching funds.

How do they figure out the cap on the match, though, if they don't know how much I'm going to earn during the year or how much I'm going to contribute?

they "control" the match by setting it to the 50% of 6%... doesn't matter whether you contribute 6%, 10%, 50%.

[disneysteve]

They will keep matching on a per paycheck basis until you hit the IRS limit for your contributions ($18k plus $6k if you are over 50). Once you hit that limit, they will stop your contributions automatically.

So being over 50, I can contribute $24,000. 6% of that is $1,440. 50% of that is $720, so that's the maximum match I can receive. Is that correct?

Now I see where the problem comes in. If I hit the $24,000 contribution limit before I hit the $720 match, they stop contributing (because I stop contributing).

This won't be a problem for me at this point since I won't be earning enough to reach the 24K limit. If I increase my hours in the future, though, I'll have to revisit the numbers to maximize the match.

ETA: So I guess putting in 50% doesn't really get me anything but a tax break. The match will be the same whether I put in 6% or 50%.

[corn18]

So being over 50, I can contribute $24,000. 6% of that is $1,440. 50% of that is $720, so that's the maximum match I can receive. Is that correct?

Now I see where the problem comes in. If I hit the $24,000 contribution limit before I hit the $720 match, they stop contributing (because I stop contributing).

This won't be a problem for me at this point since I won't be earning enough to reach the 24K limit. If I increase my hours in the future, though, I'll have to revisit the numbers to maximize the match.

ETA: So I guess putting in 50% doesn't really get me anything but a tax break. The match will be the same whether I put in 6% or 50%.

I think you got it right. They match your pay, not your contribution.

The way to get the most match is to hit the $24k limit on your last paycheck of the year and only contribute the match percentage.

Scenario 1:

Pay= $1,000
Contribution = 50% = $500
Match = 50% of 4% of PAY = 50% of 4% of $1,000 = $20

Scenario 2:

Pay = $1,000
Contribution = 4% = $40
Match = 50% of 4% of PAY = 50% of 4% of $1,000 = $20

Scenario 3:

Pay - $1,000
Contribution = 2% = $20
Match = 50% of 2% of PAY = 50% of 2% of $1,000 = $10

So you can see why it is important to contribute up to the match %. In this case that is 4%. Contributing more than that does not get you any more match.

That doesn't mean you should not contribute more. It's all pre-tax, so you can get the tax break. The key is to not over contribute to the point you are missing the match because you hit the $24k limit 6 months into the year. Some plans will be nice and do a true up at the end of the year on the match so you always get the full match and don't have to do the math. That is way cool. My plan does not do this.

Tom