401K question

[caudio51]

Salary Deferral limit is now 14K

Employer Match: 10% of salary Deferral (up to a 6% deferral)

Employee contributions are always 100% vested.
Employer discretionary matching contributions, if made, are subject to a five year vesting schedule (20%, 40%, 60%, 80%, 100%). Vesting based on date of hire.

So for someone who makes 30K and has been there less than a year, what is the employer match?

 

[Shiba]

Looks like if you put in 10, they will put in 6.

The 10% of salary is the MAx you can put in and they will match it up to 6%. You put in 6% and then so do they... You put in 7%, they still only put in 6%.

Make sense?

 

[caudio51]

Gotcha, I knew I was reading into it too much.

 

[DePasta]

Actually it looks to me like they match 10% of the dollar amount you put in up to 6%. Very few plans offer a $ for $ match anymore If they do you are very lucky. So if you put in 6% of $30K ($1800) They will match with $180. A 10% max is awfully low I would think that it is higher, especially with $14k limit. I suggest you contact you plan administrator and they should be able to answer the questions.


Dan

Looks like if you put in 10, they will put in 6.

The 10% of salary is the MAx you can put in and they will match it up to 6%. You put in 6% and then so do they... You put in 7%, they still only put in 6%.

Make sense?

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[kevpriest]

Agreed with ddepaola, from your description, it's a 10% match of your contribution, up to a 6% deferral. Not great, but it's still free money (after vesting).

 

[caudio51]

So what contribution would max the employer contribution?

 

[Fireman Tim]

I would suggest that you get in touch with someone from your work and check with them. I do not have a 401 myself but from what I have heard there are several different setup's you can have. Also you would want to check about the status of your 401 just for example if you were to leave work for one reason or another and how you can secure it for your future.

 

[Emmo]

So what contribution would max the employer contribution?

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Employer Match: 10% of salary Deferral (up to a 6% deferral)

It looks like you would have to contribute 6% of your salary to get their max contribution of 10% of your 6%.

 

[vewyphishy]

Salary Deferral limit is now 14K

Employer Match: 10% of salary Deferral (up to a 6% deferral)

Employee contributions are always 100% vested.
Employer discretionary matching contributions, if made, are subject to a five year vesting schedule (20%, 40%, 60%, 80%, 100%). Vesting based on date of hire.

So for someone who makes 30K and has been there less than a year, what is the employer match?

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Sounds like a bunch of corporate jargon for "you're getting screwed."

 

[Emmo]

Salary Deferral limit is now 14K

Employer Match: 10% of salary Deferral (up to a 6% deferral)

Employee contributions are always 100% vested.
Employer discretionary matching contributions, if made, are subject to a five year vesting schedule (20%, 40%, 60%, 80%, 100%). Vesting based on date of hire.

So for someone who makes 30K and has been there less than a year, what is the employer match?

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Sounds like a bunch of corporate jargon for "you're getting screwed."

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True Fishey. 10% is kind of lame. Your contribution $50. their contribution is $5. and you have to stay 5yrs. to gey it all.
At one time I worked for a company that contributed $0,00. Your 401 was what you made it.
I am lucky enough to work for a company now that doubles my contributation up to 5%. My contribution $50. their contribution $100.
Since 10% isn't really very much and having only 1 or 2 resources to choose from you can check into places
like Merrill Lynch and others who have access to every 401 account out there.
Some are more profitable than others. You could also get into a private client group.

 

[kevpriest]

So, just to answer the question with the specifics that were given, here's your optimum configuration:

You should defer 6% of the 30k ($1,800 per year)
The company will match 10% ($180 per year)
At the end of 1 year, you will have a combined total of $1,980 in contributions.
Your vested interest in those contributions will be $1,836 ($1,800 + $36).
At the end of 2 years, you will have a combined $3,960.
Your vested interest in those contributions will be $3,744 ($3,600 + $144)
So on, and so on.

This does not account for any gains or losses from investment activity.

If you'd like to save any additional money for retirement, it's going to be better for you to contribute to a Roth IRA. Given the income stipulated, you're more likely to pay higher taxes later than you are now, so a Roth, which allows you to pay taxes now (at the lower rate) and draw the income tax free in the future should work to your benefit.

Take the free money, even though it's not much, but don't contribute more than 6%. Take any additional money and put it into a Roth.

And remember what you paid for this advice: It's got a money back guarantee if you're unhappy with the results. :sign:

KevPriest

Salary Deferral limit is now 14K

Employer Match: 10% of salary Deferral (up to a 6% deferral)

Employee contributions are always 100% vested.
Employer discretionary matching contributions, if made, are subject to a five year vesting schedule (20%, 40%, 60%, 80%, 100%). Vesting based on date of hire.

So for someone who makes 30K and has been there less than a year, what is the employer match?

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[Gonz]

That 14k number is the max the irs allows to be placed in an employer sponsored 401(k) or 403(b). Folks who make enough money to be able to save more than 14k/year are usually offered another deferred compensation plan, either a 457 (f) or (b).

However the thing to keep in mind is this: Assuming current newer tax laws regarding taxation of capital gains (and tax laws can change as often as diapers) you're better off saving additional income (above the 14k/year) in a non-tax deferred program. If it is tax deferred now it comes out later at your ordinary income rate, which is most likely going to be between 20-50%. If you just save already taxed income in something like a stock, mutual fund or other investment, you'll only pay 15% later on (and only on the gain, not the principle). Just something to think about. And similar to the above, this is just my opinion, not professional advice!

 

[CalixEros]

10% is a very poor contribution by your employer. Since your tax rate is so low now and will probably be higher at retirement, I would look into a Roth IRA.

 

[caudio51]

Thanks for all the answers...I'm a youngin so I am trying to aquire all the info I can, hence I read about personal finance a lot.

 

[Gonz]

I think alot of young folks would be surprised at how easy it is to become a millionaire. With a small amount of savings each month you can aquire a fairly large "nest egg" by the time you retire. I prefer to think of it in terms of choices: If you can decided to go to the store for a six-pack instead of going out to the bar or club, once or twice each month, then you'll have an extra $50 or so to put towards a savings goal. I'm not sure I want to apply that analogy to cigars though!

 

[slowhand]

I am lucky enough to work for a company now that doubles my contributation up to 5%. My contribution $50. their contribution $100.

Wow. Where do you work? I have never seen a 200% match. I sure hope you are putting in your max of 5%??

We used to have a 100% match but now it is down to what appears to be a standard 50%.

I agree, 10% is pretty darn low. However, it is just one part of your overall compensation package and the rest of it may be great. Just make sure you are taking advantage of it by contributing 6%. It is free money.

 

[DePasta]

I think alot of young folks would be surprised at how easy it is to become a millionaire. With a small amount of savings each month you can aquire a fairly large "nest egg" by the time you retire. I prefer to think of it in terms of choices: If you can decided to go to the store for a six-pack instead of going out to the bar or club, once or twice each month, then you'll have an extra $50 or so to put towards a savings goal. I'm not sure I want to apply that analogy to cigars though!

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You're right. I still consider myself "young" but when I first started working I put the max percentage in my 401k that I could. Every time I got a raise I bumped it up until the point I was at the allowed 25% max. I have since had to back that percentage down but I contribute the full IRS limit and put the excess in a Roth or similar investment.

I will say one thing. I may not be able to buy all the cool toys that my peers have but I will have better ones when I retire.

You will definitely spend what you make. If you start putting it away early you won't spend it and you won't miss it.

Dan

 

[Emmo]

I am lucky enough to work for a company now that doubles my contributation up to 5%. My contribution $50. their contribution $100.

Wow. Where do you work? I have never seen a 200% match. I sure hope you are putting in your max of 5%??

We used to have a 100% match but now it is down to what appears to be a standard 50%.

Univ. of Mich. My share of ins. is $4.31. They pay the rest.
You ain't ever gettin me outa there.

 

[caudio51]

Yea, I am definitely putting in a lot of money. It will increase even more once the school loans are paid off.