Saturday, November 29, 2014
When an employer offers their employees free money as an incentive to participate in their 401(k) retirement plan, it makes sense to accept it by participating and making contributions to their accounts. For those who were anxious to save as much as possible through an employer-sponsored IRA, another potential pitfall could reduce the full amount of matching contributions you are entitled to receive.
For many employees, coming up with $3,000 to contribute can be the biggest challenge they face. For higher wage earners, another pitfall can come into play. If you contribute too high a percentage of your overall salary early in the year, you can end up maxing out the $17,500 annual limit on 401(k) contributions too early, thus costing yourself matching funds.
Fortunately, some 401(k) plans have provisions that prevent the loss of your match from occurring in the first place. These “true-up” provisions ensure the employer considers all of your earnings from throughout the entire year in calculating the matched amount, rather than just the months in which you made contributions. Even if your employer’s plan does not have true-up provisions, there is another way you can make sure you get every penny of matching contributions you deserve. If you monitor your matching to have an equal fraction of the 401(k) contribution limit taken from each regular paycheck and contributed to your 401(k) account, then you will ensure you make a contribution each month and get the full amount of the match throughout the year.
See Dan Caplinger, This 401(k) Mistake Could Cost You Your Match, Daily Finance, Nov. 27, 2014.