401(k) Match Calculation

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
swied
Posts: 20
Joined: Tue Aug 09, 2016 5:46 am

401(k) Match Calculation

Post by swied »

The company I work for has in the past matched 401(k) contributions. Here is the match verbiage: 20% of the employees own deferral up to 5%.
I am trying to contribute just enough to max out the company match. For easy figuring, if I made $100k, what should my my 401(k) percentage be?
fyre4ce
Posts: 1042
Joined: Sun Aug 06, 2017 11:29 am

Re: 401(k) Match Calculation

Post by fyre4ce »

I'd interpret that as lesser of {20% of elective deferral, 5% of base salary}. So if your base salary was $100k, and you contributed the maximum deferral of $19,500, you'd get a $3,900 match (lesser of $19500*20%=$3,900, $100000*5%=$5,000). You can run the numbers and see that if you make more than $78,000 base salary, your match won't be capped by the 5% base salary, but if you make less than $78,000 it could be.
User avatar
arcticpineapplecorp.
Posts: 6412
Joined: Tue Mar 06, 2012 9:22 pm

Re: 401(k) Match Calculation

Post by arcticpineapplecorp. »

swied wrote: Mon Oct 12, 2020 7:18 pm The company I work for has in the past matched 401(k) contributions. Here is the match verbiage: 20% of the employees own deferral up to 5%.
I am trying to contribute just enough to max out the company match. For easy figuring, if I made $100k, what should my my 401(k) percentage be?
max 401k (under 50) is $19,500. Say you contribute that.

If they're giving you 20% of that match, up to 5% (presumably this is 5% of your salary...therefore they wouldn't contribute more than $5000 if you make $100k), then 20% of $19,500 is a $3900 employer match.

that's how I read it.

right? wrong?
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
Alaric
Posts: 72
Joined: Tue Feb 05, 2019 1:38 pm

Re: 401(k) Match Calculation

Post by Alaric »

$5,000 (5%). They will 20% match you up to that point, so a $1,000 employer match.
Topic Author
swied
Posts: 20
Joined: Tue Aug 09, 2016 5:46 am

Re: 401(k) Match Calculation

Post by swied »

Very confusing. Here is the official language for the past:
The company contribution is 20% of each eligible employee's own deferral, up to the first 5% of your compensation.
User avatar
teen persuasion
Posts: 1320
Joined: Sun Oct 25, 2015 1:43 pm

Re: 401(k) Match Calculation

Post by teen persuasion »

swied wrote: Mon Oct 12, 2020 7:28 pm Very confusing. Here is the official language for the past:
The company contribution is 20% of each eligible employee's own deferral, up to the first 5% of your compensation.
That matches Alaric's post.

First 5% of your $100k compensation is $5k contribution. Twenty % of $5k contribution is $1k employer match.
fyre4ce
Posts: 1042
Joined: Sun Aug 06, 2017 11:29 am

Re: 401(k) Match Calculation

Post by fyre4ce »

I still favor my interpretation ($3,900) rather than the alternate that several have proposed ($1,000). But, the best way to resolve it is to contact your employer's benefits team and ask them.
shockwavesfan
Posts: 18
Joined: Tue Sep 15, 2020 10:44 am

Re: 401(k) Match Calculation

Post by shockwavesfan »

I work with plan documents and summary plan descriptions all the time. I’m going with the posters who think the maximum match will be 1% of your pay so in the example $1,000.

You will want to make sure but if that turns out to be true you will want to make sure that you contribute a minimum of 5% to maximize the company match.
MikeG62
Posts: 3228
Joined: Tue Nov 15, 2016 3:20 pm
Location: New Jersey

Re: 401(k) Match Calculation

Post by MikeG62 »

teen persuasion wrote: Mon Oct 12, 2020 7:31 pm
swied wrote: Mon Oct 12, 2020 7:28 pm Very confusing. Here is the official language for the past:
The company contribution is 20% of each eligible employee's own deferral, up to the first 5% of your compensation.
That matches Alaric's post.

First 5% of your $100k compensation is $5k contribution. Twenty % of $5k contribution is $1k employer match.
+1.

20% x 5% = 1%
1% x $100,000 = $1,000

This assumes you contribute at least 5% of your compensation (and that your compensation is $100,000).
Real Knowledge Comes Only From Experience
Topic Author
swied
Posts: 20
Joined: Tue Aug 09, 2016 5:46 am

Re: 401(k) Match Calculation

Post by swied »

Thanks everyone.
Post Reply