This is my first job out of college, and I just made my first 401k contribution of $2,898.38. My company offers a 100% match of 4% of my annual salary, which should be $2,800 for my $70,000 salary. However, the employer match I received was only $116.67. This seems to be 4% of the amount I contributed, not 4% of my salary. Did I misunderstand how this works? I’m hesitant to ask my company directly and would appreciate any help understanding this.
Are you paid twice a month? If so, your employer match might be divided across your pay periods. For example, $2,800 divided by 24 paychecks equals $116.67 per paycheck.
Miller said:
Are you paid twice a month? If so, your employer match might be divided across your pay periods. For example, $2,800 divided by 24 paychecks equals $116.67 per paycheck.
I am, yes. That makes sense now. Thanks!
@Kimberly
You should ask if your company offers true-up contributions. If they do, you might get the full 4% match on your annual salary by the end of the year, even if your contributions vary. If they don’t, you’ll only get the match for each paycheck where you contribute, and any missed match is just gone.
@Lake
I think you’re referring to a ‘true-up.’ For high savers who max out early, some companies will adjust at the end of the year. If they don’t offer it, you’ll need to spread out your contributions to maximize the match each paycheck.
At my company, the match is calculated per paycheck. For example, if they match 67% of up to 10% of your paycheck and your paycheck is $3,000, they’ll match $200. If your contributions exceed that, they won’t match beyond the cap. At the end of the year, they may true-up any differences, but not all companies do this.
@Clancy
This is especially important if you front-load contributions. Check with HR to see if they do a true-up at year-end. If not, you might want to spread contributions evenly throughout the year to avoid missing out on the match.
@Clancy
I used to work with a client who matched 100% up to 100%. It was rare, but some companies have very generous plans.
JoanCollins said:
@Clancy
I used to work with a client who matched 100% up to 100%. It was rare, but some companies have very generous plans.
Wow, that sounds amazing. Wish my company did that.
It sounds like you tried to contribute 4% of your annual salary all at once. Most companies match 4% of each paycheck, not your total salary upfront. Missed contributions can’t be caught up later.
Ainsley said:
It sounds like you tried to contribute 4% of your annual salary all at once. Most companies match 4% of each paycheck, not your total salary upfront. Missed contributions can’t be caught up later.
Yes, I started late in the year and thought I could catch up with one big contribution. Now I realize that might not have been the best approach, especially since I plan to leave this job soon.
@Kimberly
If you’re planning to leave soon, the match likely won’t vest. Consider rolling over your 401k to an IRA or another employer’s plan if you leave.
Employers usually match based on your contributions per paycheck, up to 4% of your salary. They do this to prevent people from maxing out contributions in one go and leaving. Also, check your company’s vesting schedule. Some require you to stay for a certain period before the match fully belongs to you.
@Alden
What does vesting mean in this context?
Kimberly said:
@Alden
What does vesting mean in this context?
Vesting means you need to stay with the company for a set amount of time before the matched funds are fully yours. Your contributions are always yours, but the company match may be forfeited if you leave too soon.
Your employer divides the match across your paychecks. For a $2,800 annual match on a $70,000 salary, you would get about $116.67 per paycheck if paid twice a month.