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Suppose an employee has a yearly salary of $100K and his/her company matches "50 percent match up to the first 6 percent", and the employee is contributing at a rate of 40%. The employee will reach his/her IRS limit of $19K by 6 months.

So for the last six month there will be no 401K deduction from his own salary. The question is, will the company will still match, or will the employee lose the 401K match for last 6 months?

  • It depends on the employer. This hypothetical employee should KISS and just contribute 19%. – RonJohn Nov 19 '19 at 22:05
  • What does your company say? – Joe Nov 19 '19 at 22:40
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    The company will probably still match the zero deduction... giving him additinal 50% of zero... – Aganju Nov 19 '19 at 23:40
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In such a situation, my former employer would make up the lost deposits in February of the following year.

e.g. I deposit 90% of my income the first month, and that's it for the year for me. In February, the employer sees their yearly match should have been $3000, and they deposit the difference then.

I agree with my fellow Joe, i.e. you should ask your contact in benefits to clarify what they'll do. My example may be just that, how one company handled it.

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Will the company will still match or the employee lose the 401(k) match for the latter 6 months?

There are some plans that do it each way. The particular term that controls this is called an annual "True-Up"... you should check your participant disclosure documents and/or ask your benefits coordinator whether your plan provides True-Up of the company match.

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Typically they will not match, which makes this strategy, failing other information, very unwise. The employee should normalize their contributions such that they reach the limit on the last paycheck of the year.

This can be difficult with employees that are paid variable amounts, but is doable. Cash flow management can be tricky.

  • The best strategy would be to go 34% instead of 40% for half the year and then 6% the rest to still get the full match while having the highest growth. – xyious Nov 20 '19 at 16:20

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