Audio Version: Let Me Hear It!
After reading last week’s $ense, we’re certain that you double checked your 401(k) contributions to make sure that you are at least getting the full match from your employer (hint, hint). Say your employer matches 4% and you’re contributing 4%. “Done and done,” you think. But, you could still be missing out. The higher and/or more variable your income is and the higher your contribution rate, the more you could be at risk of missing out on free company money.
The thing is, your company match is just that – a match. If your contributions from each paycheck reach the annual IRS limit before the end of the year ($18,000 under age 50 and $24,000 age 50+) your employer may stop pulling from your paycheck for the balance of the year. And, you guessed it… no contributions by you means no match by the employer. Ultimately, if you max out before the end of the year, it’s possible that your employer will have only contributed a percentage of the income you earned before you maxed out. That means, the income earned for the balance of the year goes match-less.
The Fix: First, check with your HR department to see if they offer a “true-up” contribution at the end of the year to fix this common oversight by employees. If they don’t, change your contribution from a percentage of your income to a set dollar amount so that you will not max out before the end of the year. In either case, share The $ense with your friends so they can check too!