How do I calculate a 401K Employer Match? Let me show you how.
As a followup my last video on 401Ks
I’m going to go a layer deeper on how to calculate your 401K match. It’s a bit confusing at first, but here are a few examples.
1. Fixed % of your personal contribution. For example 25% matching. If you contribute $10,000 – then the company will match 25% or $2,500. If you contribute the full max of $19,500 then you will be matched $4,875.
2. 50 cents on the dollar up to 6% of your salary. This is the most common 401k Employer match. However, it can be a bit confusing. Let’s say you make 100K. 6% of that is $6,000 of personal contribution. You’re employer will match $3,000. The higher your salary, the higher your potential match. Aim to contribute AT LEAST 6% of your salary for a plan like this.
3. 60% for the first 3% and 50% for the next 3% of your contributions. 4 percentage signs in 1 single sentence… WTF. For this example, let’s also consider a salary of 100k. The first 3% is 3,000 of personal contribution, matched at 60% which is $1,800. The next 3% is another $3,000 matched at 50% equaling $1,500. Just like example number 2 – Aim to contribute AT LEAST 6% of your salary for a plan like this.
0:00 Start
0:59 Match 25% of your contribution
2:11 50 cents on the dollar up to 6% of your salary
3:24 Viewer Question
3:54 60% for the first 3% and 50% for the next 3% of your contributions
5:17 Thanks for watching!
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LEARN MORE ABOUT: 401k Plans
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I enjoyed your video. Can you explain this example please… I get the first part but don't understand the second part: "Employer will make safe harbor matching contribution equal to 100% of your salary deferrals not to exceed 3% of your compensation plus 50% of your salary deferrals between 3% and 5% of your compensation." Thank you in advance.
Great explanations.
Hello, thanks for the great video! My employee plan offers a max contribution of up to 25%, with 100% company match on the first 6% BUT says “up to 82% of my total salary.” Conveniently I make 100 grand a year. If I’m doing the full 25% and enjoying that extra 6% from my employer, is there any way to use that “up to 82% of my salary” line to get more than the 6% they are giving me? If I split my 25% contribution into Roth 401k, pretax and post tax 401Ks each week is there any may to milk my employer for more? That “up to 82%” line has me wondering. (P.S, I do realize that by the end of year that I’ll blow past my pre tax limit and get pushed into a post tax bucket for the rest of the year. My plan allows for that.) Thanks again!
You literally have the same face as Manny Pacquiao.
I have a question. My CTDI employer matches up to 10% of an employers contribute up to the first 5% of his/ hers contribute of the plan.
I tired doing the math which was. At 5% in which my CTDI employeer automatically take out our weekly paychecks which is $33.00 that's low asf. I just got the Empowerment # to up my contribute to 10% the highest CTDI offer.
So at 40 hrs my paycheck is $667.00 total weekly after taxes an 401k contribute it comes out to $566.00 -$66 for taxes -$33.00 not including my work benefits that's more -$25.00.
So at 10% I wondering what is my MAX out $ ?. Is for the year to have my CTDI employer fully match my contribute this year.
Can I pull out of the match I gained? Will there be any penalties if I pull out of it?
This was so helpful! I just came across a bookkeeping client with this same type of wording in their plan. It was so confusing, but your explanation helped immensely. Thank You!
My employer only does a 1 percent match
Thank you so much!!!!!!!!!
3rd example?
thanks man definitely appreciate you explaining it in a simple way after a long day. Much easier on the brain than staring at a PDF of the Plan Overview lol
For beginners
Hi, what if my employer offers 2%matching. Does that mean they will contribute 20 dollars
Excellent video.
Love your lighting set up man! I have an RGB light as a hairlight but haven't been making the use of it lately; you're giving me some inspiration though 🙂
Lol fixed rate match would be insane! I agree that the language on the match is so confusing for beginners and needs more intuitive language. Great video Minh
My employer does 50% match, which is great, until you read the 2nd half of the sentence that says "up to 1k total match benefit"…. I'm still maxing 401k contribution annually (probably not after escrow closes on this house purchase), but I also work for a company that gets hit with inequality penalties due to disparity of contributions between high income earners and low income earners within the company so inevitably at the end of the year my 401k maximum contribution gets forced down between 1-2k and they kick me back a check for my over-the-allowed recalculated maximum because there are laws against having too much disparity within a company. Hopefully most people don't work for companies that perpetuate such problems.
I do! Even though I was doing Dave Ramsey's baby steps to get out of debt I was like, "I'm not not taking free money." Plus my match is very small, 2%, that I figured it wouldn't make a huge difference. We also get vested in a pension after five years so that makes up for the small match.
PS. Great channel! New subscriber here! Nice to meet you.
Awesome! Love the content that you are putting out on Youtube my friend! I really enjoy watching it. Keep up your awesome work…
All employers should just share out this video! The graphs made the calculations so easy to follow. I've never worked somewhere where they matched, but remember this if I ever need it.
IIRC, all of the employers I've had when I worked for others went with scenario #2. Seems like #3 would give employers a bit more control. That's awesome you created a video answering a question from the comments of a previous video. Very helpful!
Great clarification on 401k! I always take advantage of the employer 401k no matter what and push it towards a Roth 401k. Kind of hard to do this now since I'm a contractor at the moment XD.