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Retirement and matched contribution from employer

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  • Avatar DRANA 
    Participant
    Status: Physician
    Posts: 2
    Joined: 07/29/2019

    Hello,

    I am new to the WCI website/forum and its been an eye opener of how ignorant I am with financials. I am starting to read more and trying to get financially literate for my husband and 2 children.

    As I was learning, we should be saving 20% of each paycheck for retirement, I recently increased my contributions from 6% to 20%. Apparently my employer will match up to 6% of my salary (224K). Per my paycheck I am YTD 7700 in 401K. I was told by a friend that I should not increase it 20%  as if I max out the total of 401K  which is 19K for 2019 then I will not get the employer match …is that true? what I was explained is once i hit $9500 YTD of 401K I no longer will have to continue to contribute as my employer would match the 9500

    If so,  can I continue to separate the 20% and what other retirement accounts should I be contributing to it ?  or should I use the 20% of the rest of the year to be attributed to by student loan (360K for which I am currently paying about 4300 with goal of paying it 10 years)

    I appreciate any guidance.

     

    #234833 Reply
    SerrateAndDominate SerrateAndDominate 
    Participant
    Status: Physician
    Posts: 501
    Joined: 02/01/2018

    Buy your friend a book or three.

    Max out employee contribution

    Earn everything.

    #234895 Reply
    Avatar billy 
    Participant
    Status: Physician
    Posts: 180
    Joined: 04/07/2016

    your friend is wrong.  Max it out (full 19000 this year).  The employer match is allowed up to a different limit.  You may want to ask your employer though if they only match per paycheck or if they “true up” at the end of the year.  What I mean is that some places will only match for each paycheck that you contribute into the 401k, so if you max out the 19000 of YOUR contributions before the end of the year, you miss out on the employer match for the rest of that year.

    #234903 Reply
    Avatar JBME 
    Participant
    Status: Spouse
    Posts: 571
    Joined: 03/26/2018

    There are two limits. One limit is the $19k employeE contribution. That’s you, and that’s your max. Then there’s also the $56k total contribution to a 401k per year. Feel free to google it. Due to that $56k total contribution limit, that’s why your employer can put in a match and you get more than $19k in your 401k/year. Mention to your friend that he/she was wrong and try to educate. If they insist you are wrong, politely dismiss yourself from the pointless argument and choose to never listen to that person again on any personal finance issue

    #234943 Reply
    Avatar fasteddie911 
    Participant
    Status: Physician
    Posts: 310
    Joined: 05/31/2016

    Hold on here, what’s the exact verbiage used on your 401k documentation?  If it says 100% match up to the first 6% of your contributions, then your friend is correct.  If you contribute 20% per paycheck, only the first 6% will get matched.  You will max out your 401k in a few months and the matching contribution stops.  As opposed to spreading it out over the year so that each paycheck you get 100% of the match.  Though the explanation of $9500 is incorrect.

    Also that 20% isn’t 20% into 401k, it’s just 20% overall (401k, ira, taxable, etc.)

    #234952 Reply
    Liked by Tim, ZZZ, Lordosis
    Avatar jhwkr542 
    Participant
    Status: Physician
    Posts: 1339
    Joined: 02/15/2016

    As Billy said, i think your friend is referring to the true up provision. Let’s say you hit the $19k employee contribution limit in 6 months, but your employer has only added 3% per paycheck. Do you get the full 3% on the rest of your salary for the remaining 6 months when you’re not making any more contributions because you can’t? Ask your HR.

    #234954 Reply
    Liked by Tim
    Lordosis Lordosis 
    Participant
    Status: Physician
    Posts: 2222
    Joined: 02/11/2019

    I think fasteddie got it right here.  If you put 20% of your paycheck into your 401K at your salary you would contribute 45K which is over the limit.  So when you hit the limit of 19K(assuming you are under 50)  you will not be allowed to contribute until next year.  If your employer matches per paycheck then you will not be able to get the match the second half of the year.  So talk with your HR to figure out the best way to max this out.

    Then you want to put 20% of your household income towards retirement.

    45K-19= 26k

    So you need to save 26K on top of your 401K.  See if you have any other tax advantaged accounts.  Spouse 401K.  Back door roth IRA, HSA, Then taxable account.

    Depending on your age and lifestyle and current savings you might want to consider more if you are late to the game.

    More information begets more advice. (I think this is my new saying on this forum)

    “Never let your sense of morals prevent you from doing what is right.”

    #234956 Reply
    Liked by ZZZ
    Avatar ZZZ 
    Participant
    Status: Spouse
    Posts: 730
    Joined: 06/18/2018

    @drana

    Kudos for working on your personal finances.

    You don’t need to save 20% of EACH paycheck. You should have a goal of saving 20% (or, hopefully more) of your gross income for the year.

    The 6% match is probably per paycheck. So, you need to make sure that you:
    1. Make sure you have space in the 19k employee deferral limit to contribute at least 6% of every paycheck so you get the full match.
    2. Make sure you fill up the full 19k employee deferral for the year.

    Are you doing backdoor Roth IRAs for you and spouse?

    #234974 Reply
    Liked by q-school
    Avatar DRANA 
    Participant
    Status: Physician
    Posts: 2
    Joined: 07/29/2019

    Thank you for your wonderful wisdom and willing to enlighten me.  I am sorry for my delayed response.

    Fasteddie911 that is exactly the verbiage used.

    ZZZ my next goal is to look into the backdoor Roth IRAs

    Thank you all again.

    #238751 Reply
    Liked by Tim
    The White Coat Investor The White Coat Investor 
    Keymaster
    Status: Physician
    Posts: 4637
    Joined: 05/13/2011

    Here’s some information on how to do a Backdoor Roth IRA:

    https://www.whitecoatinvestor.com/backdoor-roth-ira-tutorial/

    And check out this post, while you are at it, since you are just getting started:

    https://www.whitecoatinvestor.com/five-steps-to-start-saving-for-retirement/

    Site/Forum Owner, Emergency Physician, Blogger, and author of The White Coat Investor: A Doctor's Guide to Personal Finance and Investing
    Helping Those Who Wear The White Coat Get A "Fair Shake" on Wall Street since 2011

    #239364 Reply
    Liked by Tim

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