Written by Karen Wallace | Morningstar | 10.10.2017
Many companies match a portion of their employees’ 401(k) contributions each pay period as an incentive for their workers to save for retirement. But sometimes the rules aren’t clear, and the math can be tricky. Here, we tackle a few common reader questions.
Does my company’s matching contribution to my 401(k) count toward my annual contribution limit?
Yes and no. Strictly speaking, the company’s matching contribution does not count against your own employee annual contribution limit, which currently stands at $18,000 ($24,000 if you are 50 or older). So you can contribute up to that amount, and whatever your employer matches is irrelevant. If you participate in more than one 401(k) plan, the limit applies to your total contributions to all plans.
However, there is another contribution limit that pertains to both employee and employer 401(k) contributions. Total contributions combined cannot exceed $54,000 per year ($60,000 for older workers). Although this amount may seem out of reach for most workers, it can come into play if a company’s match is generous enough or if the plan includes a profit-sharing component.
To maximize company contributions, you’ll want to save at least enough to get the full employer match, but you might also need to pace your contributions so you don’t hit your own $18,000 cap too early in the year and miss out on company matches in the later months.
Sawston Wealth Management, LLC, is a Registered Investment Adviser with the State of Washington. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.
The above material was prepared by Morningstar. Morningstar is not affiliated with the named advisor.