How supersavers cheat themselves out of 401(k) matches

The way matching contributions work

Many employers choose to provide matching contributions in order to give their workers more incentive to save toward retirement in their 401(k) accounts. Typically, an employer that offers matching contributions will pick a certain percentage of your salary that it will match, along with the proportion of your own contributions it will match. Some employers match your contributions on a dollar-for-dollar basis up to a certain maximum amount, while others will provide a different amount, such as $0.50 for every $1 you contribute.

For example, one common matching provision involves employers matching the first 6% of your salary, either with $0.50 or $1 for every $1 in your own contribution. So, if you make $60,000 and get paid once a month, you could choose to contribute 6% of your $5,000 monthly paycheck, or $300. Your employer would then match that with an employer contribution of $150 or $300, depending on the matching provision. Over the course of the year, that’d add up to contributions of $3,600 from you and either $1,800 or $3,600 more from your employer in the form of matching.

However, you could save a lot more than $3,600 if you wanted to. If you set aside 30% of your pay, you’d have total annual contributions of $18,000 — just below the $18,500 maximum for 2018. You’d still get the same match, though, because it applies only to the first 6% you save in your 401(k).

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