# I'm attempting to understand my 401k and how much I need to contribute to maximize the match

I pretty much put the entire question in the title.

My company's 401k is the following:

Your employer matching contribution is equal to 100% of your employee deferrals up to 1% of eligible compensation each pay period. Your fixed match is 100% vested immediately.

I get paid semi-monthly; each paycheck before taxes is \$3,833.84 giving me annual gross pay of \$92,012.05. I've been contributing 2% of my paycheck. I notice that I'm only getting 1% employer match on each of my paychecks. This leads me to wonder if I'm misunderstanding how the employer match and contributions work.

How do I hit the match of \$920 - 1% of my gross salary? For example, last check I contributed \$76.68 and the employer match was \$38.34. I simply want to hit the employer match and that's it.

As an addendum, I realize that 2% isn't much, but I'm trying to pay off my student loans (aggressively). I realize that if I upped my contribution to 4%, I'd probably hit the match but why is that the case?

• Your HR department may also be helpful in understanding how to maximize the employer contribution. – jpmc26 May 7 '19 at 21:51
• I'll admit I'm a bit confused about what you're confused about. You agree the maximum employer match is \$920 a year. You have 24 pay periods. \$920/24=\$38.33, exactly what you're seeing your employer contribute. So you're hitting that maximum match; what makes you think you aren't? – Daniel Wagner May 8 '19 at 3:31
• @DanielWagner I think the problem was the misunderstanding of the wording - I had thought that it meant that it would match up to 1% of my gross salary per contribution (e.g. if I contributed 920 a pay period they'd match 920 but anything above that would not be matched) but reading it again and seeing Pete's explanation, it cleared it up 👍🏾 – secondubly May 8 '19 at 13:48
• Side note: the 1% match is not overwhelming, but the fact that the employer contribution is 100% vested immediately is nice, and (in my experience) unusual. It's pretty typical for those monies to vest at 15%-20% per year; in such a scenario, you won't be 100% vested for 5-7 years, so if you leave earlier than than, you'll only take a portion of the employer contributions with you. – David May 8 '19 at 20:59
• @David I think the max allowed vesting time is 6 years. – stannius May 9 '19 at 14:57

The key clause is this: 1% of eligible compensation each pay period.

If you are hired mid-year, you would be eligible for 1% of the remaining paychecks.

If you contributed \$19,000 from the first paycheck of the year, you would only receive 1% of 1/26th of your pay.

If you contribute 10% of your pay, you will still get \$38.34 in match. One percent stays the same. One percent is what you need to contribute to maximize your match. It is not the greatest matching plan, but better than others.

In your case, I would recommend putting this at 1%, and paying down your student loans. Really, keeping it at 2% would not make much of a difference.

Good work on paying down your loans.

• The description, from your employer, is surprisingly well written. – Pete B. May 7 '19 at 17:15
• I didn't want to write an answer because @PeteB. covered it. I only wanted to point out that `hitting the max 401k` is different than `contributing enough to match the employer contribution fully`. So if the former also becomes a goal you have to contribute close to 20% (to make \$19k a year as contribution), but your employer will still contribute 1%. So ~ \$920 in 12 months. – perennial_noob May 7 '19 at 18:20
• That "each pay period" also means that you need to do some careful planning, since you need to be able to contribute 1% during each pay period. If you were contribute \$19,000.00 in one pay period, then they'd contribute \$190 during that pay period, but you would not be able to contribute any more for the year, because you've already reached your personal limit. So you need to schedule your contributions such that you are able to contribute at least 1% from every pay period. – Joshua Taylor May 7 '19 at 21:30
• Also note that some some employers actually do will "match up" or "top up" at the end of the year, looking at your total contributions and matching at that point, which would allow you to contribute, say, \$19,000 in January, and still get a full 1% match on your salary. I have the impression that this is less common though. (I miss it; it's handy if you have a larger bonus in the earlier part of the year, since you can get your money into the 401(k) for a longer period of time.) – Joshua Taylor May 7 '19 at 21:33
• It's also worth noting that \$38.34 per pay period times 24 pay periods in a year is \$920.16 for the year. I suspect that there will be 2/3 of the pay periods where the OP is matched with \$38.33. – shoover May 7 '19 at 22:47

There are generally two key percentages in a match program: the match ratio, and the match cap. The match ratio is how much money the employer will contribute for each dollar that you contribute. The match cap is the most you can contribute with it still being matched. Your company is telling you that the match ratio is 100%, and the match cap is 1%. So if you contribute 1% of your salary, it will be matched 100%. If you contribute 2%, the first 1% will be matched 100%, and the second will not be matched. With a paycheck of \$3,833.84, your first \$38.34 is matched, and everything else is not. So if you contribute \$76.68, then \$38.34 from you will be contributed, plus a \$38.34 match from your employer, plus an unmatched \$38.34, for a total of \$115.02 being added to your 401(k).

Super simple. You're seeing it right in your numbers.

• Your gross pay is \$3834 (rounding to the nearest \$)
• Your 401K match is \$38.34

That sounds like exactly the 1% match they promised.

Since they promise 100% match up to that 1% point, it seems like a \$38.34 contrib on your part should suffice to collect the match.

You may be over-contributing... however, I don't believe there is any such thing as over-contributing if you're young. The power of compounding interest is very high for you right now.

• Unfortunately, so is the power of compounding interest on debt, and it sounds like that might be compounding at a higher rate than what OP can get in the 401(k) for contributions not immediately returning 100% via employer match. – WBT May 8 '19 at 13:18
• @WBT I would think a 401(k) for a young investor should beat the student loan rate but I could be wrong. However, the student loan will likely be paid off long before OP retires, meaning the power of compound interest will have much longer to work on the 401(k) and that extra 1% will be a worth much more in retirement than the savings from that money going toward the student loan. – Jaquez May 8 '19 at 13:50
• @WBT Everyone has a different investment style based on their financial education and appetite for risk (read: fear of volatility). As an endowment funds manager, I can say there's a gold standard (to which I am legally held) for how to invest a very long term asset. If that is followed, the 401K investment should solidly beat any but the most ludicrously priced student loans, on average anyway. – Harper - Reinstate Monica May 8 '19 at 14:54
• @Jaquez Given an investment opportunity X that returns X%>Y%, even assuming both are risk-adjusted to certain and X is available for a fewer number of years, isn't one better off putting money into X instead of Y for those years, and then switching to Y at the end of that time? OP's other option is to put more in the 401(k) and pay more interest on the student loan. If OP saved up that extra interest & put those funds in the 401(k) or comparable-return investment at the (earlier) conclusion of loan payoff, then let that grow at 401(k) rates, that would seem to yield a better long-term result. – WBT May 8 '19 at 16:38