What is my employer's matching contribution for 401(k)? Help me decipher...

[Guest]

It says... "matching contribution of $.50 per $1.00 you contribute up to a 4% contribution". For someone taking part of a 401(k) for the first time this language is hard to decipher. Does it mean that it'll contribute essentially match 50% of a up to 4% contribution for each paycheck?

 

So if it is $100 (4% paycheck contribution), they will match $50?

[encoder]

Yes, if your pay is $1000, you should contribute 4% of that -- $40 -- and they will match with another $20.

[PhoenixDown]

If you can afford to do so, try to put in at least 10% since its pre-tax. You may get some if it back as far as tax time goes.

 

One other thing to watch for is some companies will do stuff like match 100% of the first 5% but you may get an option 2% if certain achievements are made. But you wont get that 2% if you didn't contribute at least 7% all along. Get it?

[Guest]

Right! Thanks for mentioning. You think at least 10%?

[Kevin20]

Put in what you can afford to put in ... you're saving for your retirement after all. Nothing magic about 10%. The key numbers are:

- Contribute at least 4% of your gross pay ... any less than that, you're leaving money on the table (ie, employer contribution).

- The max you can contribute tax-deductible this year is $17,000 for the year (not counting employer kick-in). If you can contribute THAT much then good for you! That's for the high rollers out there.

[Guest]

Do you guys recommend investing in 1 fund or in many funds?

[Guest]

This is my first 401K, can I pull money out of funds later? Is it better to spread them out across 10-25 funds or put them into one?

[itrev82]

Depending on the rules of your company, you may be able to take a loan or withdrawal. If you take a loan, sometimes you are prevented from making additional contributions until the loan is paid off, but others let you still contribute while paying back the loan.

 

If you take a withdrawal and are under 59.5 yrs old, you would have extra taxes/penalties applied unless certain hardship qualifications are met.

 

So short answer is, yes you can get to the money. Long answer is although you can, its not reccomended due to the extra fees/taxes/penalties on a withdrawal and you essentially sign up for double taxation on paying back a loan (since you pay back the loan as "after tax" income you pay taxes 1x, then when you withdraw it at retirement you get taxed again = 2x taxes).

 

You would need to check with whoever holds your 401k or your company's HR dept on the specific policies/guidelines in your case.

 

As far as choosing funds, again it depends on your options and what your goals are. My company only offers about 15 choices in total and I think I have my money spread into 6 of them. Some of them are at higher risk (more payback) while others are at lower risk. You need to research the risk/payout of each fund and see how comfortable you are with the choices. I think spreading them into 10-25 would be way too much - but thats just me and I'm a novice on this stuff. A lot of funds also offer target date choices (ie: Target 2050) which today would be more risk to grow the money faster and as you get closer to the 2050 date, it starts moving it to less risky options. People have mixed feelings on target funds - but if you want something you can "set it and forget it" they seem to be ok.

 

I also 2nd the notion of ensuring to do at least what the company will match - dont leave that money on the table.

[PhoenixDown]

Is there a simple calculator out there that will show what my take home after taxes will be if I upped my 401k contribution amount? I know deductions, etc, are important when filing taxes but I am looking for a way of maximizing the deduction to take home ratio. If contributing 3% more will drop me a tax bracket and save me 10% I'm all for it.

[saladdin69]

Is there a simple calculator out there that will show what my take home after taxes will be if I upped my 401k contribution amount? I know deductions, etc, are important when filing taxes but I am looking for a way of maximizing the deduction to take home ratio. If contributing 3% more will drop me a tax bracket and save me 10% I'm all for it.

http://www.paycheckmanager.com/FreeCal/free_payroll_calculator.aspx

 

http://www.paycheckcity.com/calculator/401k/us/alabama/401kcalculator.html

[Guest]

I didn't realize it was tax deductible, so on my W2s, my income will report less?

[bjk123]

I didn't realize it was tax deductible, so on my W2s, my income will report less?

That depends on if you are contributing before tax or after tax money. Most plans default to before tax money, in which case the answer is yes. If your pay stub goes into enough detail, you should be able to tell. Mine has two different lines "Total Gross Earnings" and further down "Total W-2 Gross Earnings" which is my salary minus my before tax contributions plus my non-salary taxable benefits.

[lakpr]

schrute,

 

Since you said 4% contribution from your paycheck = $100, I calculate that your paycheck amount is $2500.

 

I am *assuming* that it's a monthly paycheck, then you are grossing $30,000 per year.

 

You are in a great spot to earn up to $1000 from the government, if my assumption is true. IRS rules provide up to $1000 credit for 2013 for a single person earning up to $29500, depending on the amount you contribute to 401-k plans or IRA plans. So if you contribute as little as $2000 to such plans, you will be eligible for another 10% match ($200) courtesy the IRS over and above your employer contributions.

 

The more you contribute, the higher the credit; if you contribute the maximum $17,000 in 2013, you can get $1000 from IRS.

 

See this link for full details: http://www.irs.gov/publications/p590/ch05.html

 

Even if my assumption is wrong and the amount is actually semi-monthly (2 paychecks per month), and your gross is about $60,000 per year .... you are still in a great shape to save the same $2000 over the year in retirement plans and claim the $200 credit.

 

Just get married before Dec-31

Edited May 24, 2013 by lakpr