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Just a little story of a high-level saver (me).
I'm maxing out my 18K in 401k with my employer. My employer matches first 6% of my salary (up to 100K) at 50%. They do it quarterly, but as long as you contribute in that quarter. Confusing, right?
Basically, the max they match is 3k a year, at $750 per quarter, but in order to get $750 you have to contribute at least $1500 in the quarter.
I have regular compensation and quarterly bonuses. Bonuses are somewhat variable, although I have an idea of a floor and a ceiling. I contribute X% from my regular paycheck and Y% (Y>X) from my bonuses. The numbers are based on a goal to have my 18k contirbuted by mid-November. My first quarter bonus was larger than I expected, and my second quarter will probably also be somewhat more than average.
So, I'm looking at my 401k transactions yesterday, seeing how I'm already at 6.5K contributed, and thinking "wow, this means that I won't have any 401k contributions withheld by mid-October". I start to think what I will do with all the money. And then it hit me! If things go this well, I won't be able to have 1.5K left to contribute in the 4th quarter. I really don't want to miss any of the company's match, because... why should I?
Luckily, I thought about this early enough. I will just monitor my contribution numbers throughout the summer, and adjust percentage of my contribution from my 3rd bonus, if need be. But here's the story of how contributing as much as possible as early in the year is possible may cost you part of your company match.
I made up a spread sheet, to figure out when to reduce my 401k percentage.
I was also max'ing mine out, but needed to keep 6% going all year to keep the 3% match (Each two week payperiod) . I wanted the Max Out to happen as early in the year as I could, But still get the whole company match. So I could get the most into the 401K before I was outsourced.
Once I had a date for my outsourcing, I then re-calculated and up my contribution to the Maximum allow to get as much as I could in.
My company matches once a year and while generally that sucks I will never run the risk of not getting the match because I maxed out early. My wife's employer matches every paycheck and that can create the similar issue as you have
My company matches once a year and while generally that sucks I will never run the risk of not getting the match because I maxed out early. My wife's employer matches every paycheck and that can create the similar issue as you have
I've always been at places where match came every paycheck, but this is my first job where I make enough to afford to max out 401k, and the once a quarter match is new to me. I guess it is better to have quarterly match rather than every paycheck. I will still get a few paychecks in November and December where I won't have to contribute anything. And nothing off of my 4th quarter bonus for sure.
If you schedule recurring contributions from regular pay instead of bonus pay, then you won't be hit with surprises. In your scenario, contributing from bonus pay results in over-contributing early, potentially leaving you without a full match for later quarters during the year. It's max contribution divided by number of actual pay dates (not pay periods) in the calendar year. So for 26 pay dates, to max out, it's a contribution of $693, or the closest percentage of your salary that equates to it.
Yes, it definitely can be a trap and the cynic in me wonders if employers do this on purpose to reduce their match.
I also match every paycheck - after my raise/bonus in September, I know my remaining salary will be constant so I can map out the rest of the year with some certainty.
I think you can contribute the 18,000 and your employer contribution is in excess of your contribution. I would check with your personal department before changing your contributions.
If you schedule recurring contributions from regular pay instead of bonus pay, then you won't be hit with surprises. In your scenario, contributing from bonus pay results in over-contributing early, potentially leaving you without a full match for later quarters during the year. It's max contribution divided by number of actual pay dates (not pay periods) in the calendar year. So for 26 pay dates, to max out, it's a contribution of $693, or the closest percentage of your salary that equates to it.
You are correct, but having a smaller amount deducted from a regular paycheck is more convenient, as it results in a more even flow of money. I contribute 12% to 401k and 15% to my company's ESPP from regular checks. There isn't much left after that and taxes, insurance etc. Bumping my 401k contributions even higher would mean I'd have to budget differently.
I think you can contribute the 18,000 and your employer contribution is in excess of your contribution. I would check with your personal department before changing your contributions.
I still think you have to contribute every quarter, based on the language they gave us when they introduced a match (just a little over a year ago). It's easy enough to reduce my contributions just enough to have 1500 left to contribute in October and November.
You are correct, but having a smaller amount deducted from a regular paycheck is more convenient, as it results in a more even flow of money. I contribute 12% to 401k and 15% to my company's ESPP from regular checks. There isn't much left after that and taxes, insurance etc. Bumping my 401k contributions even higher would mean I'd have to budget differently.
Sure. But your bonus money should offset. The key is establishing a two or three-month cash buffer so you can make 401k contributions from regular salary, while using bonus funds to augment cash flow.
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