How to Calculate the Employer Match in a 401K
401K matching programs within you employer sponsored 401K are fiscally smart employee investments. Participants have the option to maximize their retirement plan contributions for free. There are some employers who match employee’s own 401K plan contributions dollar-for-dollar, up to a certain percentage. The most common 401K matching percentage a company authorizes is 3 percent of gross income. Although some companies authorize a 401K matching portion on up to 5 percent of gross income¹. Once you have determine the amount your employer matches on your behalf, you can quickly calculate the amount of additional money invested into your 401K plan.
Determine your elective contribution percentage
You may elect to defer any amount of your salary as a 401K contribution, up to the annual limit established by the IRS. As of the time of publication, the annual contribution limit for most employees is $19,000 for 2019. Most 401K participants select a flat percentage of gross income to contribute to their 401K each paycheck. see IRS 401K limits
Determine your employer’s match percentage
Your employer may select a matching percentage based on the type of 401K plan maintained by the company and the matching contribution limits. Your employer’s contribution percentage is disclosed on your 401K plan documents.
Apply your company’s match percentage to your gross income for the contribution pay period
For example, if your employer matches up to 3 percent of your gross income, multiply your gross income by 3 percent (.03) or the amount of your personal contribution if you contribute less than 3 percent of your own compensation.
Pay attention to the maximum amount your employer contributes. For example, if your employer contributes a maximum of 3 percent of your compensation and you elect to contribute 6 percent of your compensation, your employer matching portion is still only 3 percent.
Start investing in your 401K as early in life as you can
The longer your investments have to grow and compound, the more money you will have when you retire. Your investment and corporate match happen on autopilot. Once you set up your investment, the money will be automatically invested and matched by your employer without any further involvement on your part. And when you get a raise, a portion of it will go toward your investments as well — this increases the corporate match, effectively increasing your raise!
Still have questions concerning your 401K retirement plan?
Should you invest in your employer’s 401K account if you’re confused and looking for help with your retirement? Consulting with a professional investment advisor at Research Financial Strategies will help you to help make important decisions with your 401K. This will not only create less fear of the unknown, but we will help guide you to a more successful retirement.
Research Financial Strategies offers ongoing management (401K advisor) of your employer 401K. Our years of experience will help navigate your 401K toward your retirement goals.
Research Financial Strategies is a private wealth management firm that was established in 1991 to provide fee-based investment advice. We are a registered investment advisor with the Securities Exchange Commission. Research Financial Strategies specializes in providing financial advice using a proprietary investment methodology that leverages technical analysis to identify and protect our clients against stock market risk.
Research Financial Strategies provides families, individuals and foundations with an alternative to institutionalized and impersonalized money management. A privately-owned, independent, and financially secure firm, Research Financial Strategies pursues without conflict the greatest potential in each client’s wealth.
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