60

Yes. Any contributions you make to your own 401(k) are yours - irrespective of when the contributions were made. Contributions made to your 401(k) by your employer might be subject to a vesting schedule, in which case you may own all, some or none of them - depending on the vesting schedule and period of time since the contributions were made.


59

To compare apples-to-apples, let's pretend that you are considering saving $5,500 each year ($458 per month), which is the current IRA contribution limit. And we'll compare your 401(k) to a traditional IRA, which is pre-tax just like your 401(k). Let's assume the rate of growth on your investment is 8%. In the 401(k), when you contribute $458 per month, ...


52

Many employees don't contribute enough to maximize the match, so the cost to the employer is not the same. Under the 50% of 6% strategy an employee contributing 5% would get a 2.5% match not a 3% and that saves the company 0.5%. @TTT provided an excellent link in the comments below to a study titled "How much employer 401(k) matching contributions do ...


47

This creates incentive for the employee to contribute more and increases the funds under management of the 401(k) plan. The size of the plan influences the fees that are charged in each of the funds offered. (The more assets under management, the better for those in the plan.) More importantly, 401(k) plans are not allowed to discriminate in favor of highly ...


27

Another factor to consider is that it encourages employees to contribute more into to the plan so that they'll be able to comfortably retire. Getting the full match encourages people to put at least 6% in to avoid leaving money on the table; 100% of the 1st 3% would see a lot of people only putting 3% in instead. While 9% of your income is still a rather ...


26

Regardless of how much you make, the maximum amount of your compensation that can be used for the matching calculation is $270K. Furthermore, the sum of your individual contributions plus the employer match cannot exceed $54K in a single year. More info here. In your specific example, the employee could put in up to 18K, and the 5% match on $270K would be ...


19

It's the opposite. The match must be pretax. If you have a Roth 401(k) for example, the match goes into the traditional side of the 401(k) account, not the Roth.


19

As others have noted, you are always immediately vested in your own contributions. For employer contributions, it is not legal to be totally unvested after 4 years of full-time service. If they have cliff (all or nothing) vesting, it must vested by 3 years. If they use graded vesting, it must be at least 60% vested by 4 years. The cliff vs graded ...


17

The Roth/Traditional decision is complex, but can be broken down into a set of simple rules. Ideally, you want to choose to tax your money at the lowest possible rate. This specifically refers to your marginal rate, the rate you last $100 was taxed or next $100 of income with be taxed. That, in itself, is another issue, answered with questions here ...


17

In the early days of 401Ks (think 1980's) the vesting schedules were not as regulated - so it is possible that some company had that complex a vesting schedule. The purpose of a vesting schedule is to reward employees who stay at least until they reach 100% vesting. Here are some IRS documents discussing vesting: “Vesting” in a retirement plan means ...


17

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 ...


14

The company is paying the match - it is not subsidized by the government. However, there may be other differences that don't make it a 1:1 swap with cash: 401(k) contributions and matches are tax-deferred, so switching to salary would increase tax costs for them. 401(k) matches are often vested on a schedule, meaning you might only be entitled to 25% after ...


14

Just because you are fired/quit/retire you don't lose access to logging into the 401(k) website. As has been said already you own 100% of your contributions, but you own someplace between 0 and 100% of the companies contributions. There are two places to look: on the website, and on any documentation you have from the company. In places where I worked ...


13

That means if you contribute $1000, and that is equal to 5% of your salary (salary of $20k): $400 = 100% match = $400 $400 = 40% match = $160 $200 = 25% match = $50 ------------------------ $1000 = $610 match It's basically the same as taxes; you can think of it as the marginal rate. So, for the "40% on the next 2%", that means that "first take the amount ...


12

You should fund the 401(k) and get the 4% matching because it's free money. When you leave the US, patience is a virtue to get the money penalty-free: Rollover to an IRA. Take "Substantially equal periodic payments" for 5 years or until age 59 1/2, whichever is longer, to avoid the 10% penalty. A long payout time for someone starting out, but penalty-free. ...


10

Your total contribution to 401k plans is limited to $17,500 for 2013. Employer matching contributions do not count towards the $17,500 limitation, as you have already found out. You have contributed $14,500 for 2013 to your 401k plan with your previous employer. What if between the two plans, you have already exceeded the 401k contribution limitation for ...


10

I've never heard of a vesting schedule which you describe. Your co-worker is right: it (technically, a graded schedule) starts from date of employment (which includes situations where you're eligible for matching a year after your date of employment). Of course, to be sure, read your 401(k) plan documents. That'll tell you everything you need to know.


9

Are you obligated to do what they ask? Probably not, with one big caveat discussed below. Your employer sent your money and their money after every paycheck to the 401K management company. Then after a while the 401K management company followed your instructions to roll it over into an IRA. Now the IRA management company has it. Pulling it out of the IRA ...


9

Because 401k's are also used by self employed. A person who has a schedule C profitable income can open a 401k and "match" in whatever ratio he wants, up to 25% of the net profits or the limits you stated. This allows self-employed to defer more income taxes to the future. Why only self-employed? Good question. Ask your congressman. My explanation would be ...


9

There are two problems with your understanding: The companies I have worked for match based on a percentage of your salary. That is a percentage of your gross pay. It was not based on the percentage of your net pay or after-tax pay. Net pay would be too hard to know. What I mean is the amount of insurance, HSA, Flex spending accounts, etc. determine how ...


9

The only thing you are missing is that you can borrow up to 50% from a 401k's net value at very low interest rates, where you cannot borrow from a traditional IRA. Therefore, after contributing to your 401k with that match, assuming no adverse market fluctuation, then from your 27k value 401k, you could borrow 13.5k, which puts you ahead of option 1, close ...


8

You cannot withdraw funds from a 401(k) while still employed with your company. To access your contributions, that would be treated as a loan against the 401(k), in which case you'd pay an upfront fee, and then have to repay the amount loaned, plus interest, over a set period of time. (In essence, you are paying back yourself.) Typically, there is also a ...


8

No, you cannot. 401k must not be discriminatory, i.e.: you cannot have different matching for different employees.


8

You are not allowed to take a routine 401(k) withdrawal each year. There are specific reasons that you might be allowed to take a withdrawal and what you're proposing doesn't fit into those categories.


8

In addition to JoeTaxpayer's thorough answer, I just want to tackle one particular question that was also asked: ...all employer contributions are pretax? There are a few main reasons that employer contributions go into the traditional bucket instead of the Roth bucket: It costs the employer less. Since Roth is after tax money, in order to contribute X ...


8

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 ...


7

You are legally able to contribute more than 4% to your 401(k) (unless you've hit the actual limit). There is no reason you need to pull out your "extra" contribution. So basically they just want their $27.50 back. So offer (via email or writing) to send them a check. You obviously don't work there any more, so if they insist it comes from your IRA or ...


7

With a match, the 401(k) becomes the priority, up to that match, often ahead of other high interest debt. Without the match, the analysis is more about the cost within the 401(k). The 401(k) is a tax deferred account (let's not go on a tangent to Roth 401(k)) so ideally, you'd be skimming off money at 25% and saving it till you retire, so some of it is ...


7

The first employer matching contribution gets taken back. You don't want to mess around with over contributions like this. In addition to withdrawing over contributions, they withdraw some portion of investment gains. The accounting gets complicated so best to avoid the issue.


7

Employer contributions to a 401K are not mandated by law so they are well within their right to not contribute. There is likely language in your benefits handbook that indicates employer contributions are contingent upon sufficient profits. If you do indeed have a contract that states the employer will contribute 3% without exception, then this would be ...


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