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I have a basic question on 401k investment. Below is what my company is matching:

XYZCompany will match your contributions, up to 4% of your eligible compensation, to a maximum of $10,600.

Now I have couple of questions:

  • If I am contributing 4% into my 401k account then what does it mean?
  • If I am contributing 15% into my 401k account then what does that mean?
  • If I am contributing 50$ into my 401k account then what does this mean?

Sorry for asking silly question. Any explanation will help me understand better how to go further and start contributing into my 401k account?

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Assume your salary is $100K.

Case 1: Your company will match up to 4% of your eligible compensation, to the maximum of $10600, which in your case is $4000.

Case 2: assume your salary is $1M. Now the company match maximum is $10600, since 4% of your salary is more than that.

The company will match, meaning the company will only deposit the same amount you've deposited.

Deposit case A: Assume you deposited the maximum $18K (I think that's the maximum this year).

In the first case, the company will match up to 4% of your salary and will deposit $4K on your behalf.

In the second case the company will match up to $10600 and will deposit that amount on your behalf.

Deposit case B: Now assume you only deposited $2K to your 401K. Now, in both cases the company will deposit $2K on your behalf, because it only matches your deposit, even if it limits the match by a higher amount.

  • I deleted my answer because you said the same thing and got in quicker. One thing I suggest adding/mentioning is that we shouldn't assume OP's employer is matching 100%. It is possible the company matches a lower amount and the OP left that info out. – JohnFx Apr 25 '15 at 23:57
  • I was analyzing the quote provided, from that it sounds like they match 100%. The fact that they discriminate based on salary sounds weird, because this may invalidate the plan. – littleadv Apr 25 '15 at 23:59
  • Yes they are matching 100%. So basically my company will match only 4% of my salary amount, it doesn't matter how much I am contributing right? let's say if my salary is 160k and if I contribute 20% to 401k then my company will match only 6400 only right? And how much will I be adding further more on top of this? – arsenal Apr 26 '15 at 0:03
  • Basically I am confuse when I am contributing 20% into my 401k account, what does that mean? And let's say If I don't contribute anything to my 401k account, then company will still match 4% which is 6400? – arsenal Apr 26 '15 at 0:07
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    The company will match 100% of $0 in that situation. Which doesn't do you any good. Remember they are matching a percentage (even if it is 100%) of YOUR contribution, not your salary. The salary is only used to calculate the cap on their contribution. – JohnFx Apr 26 '15 at 0:16

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