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Let's say, if the company would match my 401K contribution, up to 4.5%, and with the current 2020 limit of $19500 and $6500 for age 50 and above for catch up, it is $26,000.

Each paycheck every two weeks, we can elect to contribute up to 75% of our pay towards 401K, and the company will match 4.5% of that current paycheck. The company will match the bonus paycheck as well.

(even though we can contribute up to 75%, I think most people will contribute at most 20% or 30%).

But what if we contribute too much, and after half of a year, we have already reached the $26,000 limit? At that point, will the company find that, "we'd like to keep on matching 4.5% of your paycheck, but since you have already maxed out the amount, you can't contribute any more and therefore, we can't keep on matching"?

There are some things technical:

  1. Is the $26,000 my part only and the company's contribution doesn't count in this $26,000 limit? (so the final amount of myself plus the company's portion can be more than $26,000 and maybe something like $35,000?)

  2. Can the "max out" too soon situation like above occur? What if the company has "true up" policy, then they would at the end of year, calculate what they "could have matched" but didn't match, and deposit it into my account a few months later? (but that would already be quite some time later).

  3. So in that case, is it better just to contribute "smoothly", with the wage and bonus considered, so that around the time of end of December, it reaches or get near to the limit of $26,000? (but with the bonus that is more or less than expected, and with the possible change of wages, it may be hard to estimate).

  • It sounds like you understand it perfectly. – prl Apr 12 at 0:23
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    Some companies do a "true up" at the end of the year, so e.g. in your case, they would add an additional match so that it reaches 4.5% of your compensation the whole year if your total match that year didn't reach that. You should ask if your company does that. – user102008 Apr 12 at 19:43
  • Re (1) indeed the $19500+$6500 limits are on your portion only. There's a limit that applies to the total of your portion and the company's portion, but it's significantly higher, over $50k (and IIRC your catchup allowance of $6500 doesn't count toward that limit) – Ben Voigt Apr 13 at 15:16
3

What happens in the situation you describe depends on company policy. You must ask your company, we cannot tell you.

To answer your questions:

  1. The contribution limit applies to your contributions. The company's matching funds go on top of them.
  2. Yes, depending on company policy, it's possible that you will miss out on the company match if you don't contribute in every pay period. Some companies make a true-up contribution in the following year that makes up for the missed matching contribution. It is also possible that a company could calculate the match to your annual salary, rather than your pay period salary, so you would capture all of the match as soon as you make the maximum contribution.
  3. The safest thing to do is make sure you contribute enough in every pay period to capture the maximum match. Then you're not dependent upon the company's future true-up contributions. These types of policies can change at any time, without notice to you, so better safe than sorry.
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  • for (2) it'd be quite unlike the company matches your "annual salary" no matter what, I think? For example, if you started on Oct 1, then contribute eagerly, I don't think the company would match the "annual salary", but rather, just Oct, Nov, and Dec. for (3) I think contribute enough but not too much that you max out before the end of the year, which would let the company miss some "match up" because you can't contribute any more. So if you maxed out in Nov, then you may have to wait for the "true up" and wait until March or something like that for the company to deposit into your account – nonopolarity Apr 13 at 8:52
  • For (1) there is indeed a limit on the company contributions, but it's higher than the employee deferral limit. – Ben Voigt Apr 13 at 15:16

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