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I just started working for company, and this is my first time doing anything with a 401(k) plan. I found out this from the brochure, and I am a little confused:

1) you can save up to 80% of your eligible pay before taxes are deducted. By 'eligible pay', do they mean the $17500 limit by the IRS for 2013, or is it something else?
2) ( Up to 6% = 100% match on up to 5% of pay + 1% automatic contribution) after you have completed one year of service. What does this mean?? Can someone give an example?

Any explanation is appreciated!

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    All of the answers below are good but I wanted to comment that you have a pretty good company match, there.
    – Matthew
    Nov 11, 2013 at 17:09
  • I see, I have no clue about how other companies are doing it. But it is good to know! Thanks.
    – rgamber
    Nov 11, 2013 at 19:44

2 Answers 2

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  1. Up to 80% of your gross income, per pay period. Annually, still subject to the $17,500 limit. So if your gross salary is $48,000/year, and you get paid twice a month, your gross per pay period would be $2,000 and you would be able to contribute up to $1600 per pay period to your 401K.

  2. The first 5% of your pay you contribute will be matched by the employer. They will match dollar for dollar ("100%"). Some companies match at lower percentages (e.g. fifty cents on the dollar, or 50%). So if you chose to contribute 5% per pay period ($100), your employer would match it dollar per dollar ($100). It sounds like an extra 1% ($20) is automatic.

Matching contributions are sometimes subject to vesting.

Make SURE you take advantage of #2 after you are employed for a year. It's "free money" (really a form of compensation).

Edit:

I'm not sure if you can contribute more than 80% in a single pay period if you are catching up from not contributing earlier in the year. So the "per pay period" qualification above may not be accurate.

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    Two additional thoughts - once you hit the annual limit they will no longer be match you up to 5% amount, because there is nothing left to contribute. - it is not clear if the matching doesn't start for a year, or if the automatic 1% only happens after the first year. It depends on the accuracy of the quote. Nov 11, 2013 at 3:12
  • I was guessing it was the former, as I have has that same restriction with a former employer. However, it is indeed ambiguous as you noted. Nov 11, 2013 at 3:15
  • Thanks for the explanation. So if I make some choices now, can I change it next year? Is it like the insurance(medical, dental, vision) where I can update or change my choices every year in a certain month?
    – rgamber
    Nov 11, 2013 at 3:15
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    You can contribute up to 80% in a paycheck. Assume somebody makes %21,875 per year. They have to be able to contribute 80% to get to the $17,500 limit. Hard to be able to do, but it is possible if they want to maximize the contribution for one spouse. Nov 11, 2013 at 3:17
  • It depends on your employer, but with my past employers I was able to change it as often as I wanted (within reason). Some employers allow changes via an automated system (e.g. fidelity.com). Nov 11, 2013 at 3:17
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You make $20000. You can put $16,000 in the 401(k).

You make $100,000. Your deposits are $80K/yr or $1600/week, so you hit the $17,500 maximum very early in the year.

Every dollar you put in is matched, up to 6% of your income. On $100K, the first $6000 you put in is matched. If you put 8% in, you'll only see the first 6% matched.

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