Math Skill 7 – 401(K) Matching Calculations

401(k) matches are usually described in the following terms:

<match rate> up to <matching limit>

For example, your employer may offer a match of 60% up to 4%. The match rate is 60%, while the matching limit is 4%. This means that they will give you $0.60 for every dollar you contribute, until you have contributed 4% of your salary. If you contribute more than 4% of your salary, you will receive no additional money from your employer because you have exceeded the limit that they are willing to contribute.

401(k) Calculation Steps

1. Determine the maximum match.

Maximum Match = Rate * Limit * Salary

2. Calculate the potential match, based on the employee contribution.

Potential Match = Rate * Contribution

3. Compare the potential match to the maximum match – the actual match is the lesser of these two figures.

Actual Match = Maximum Match or Potential Match, whichever is LESS

Example Problem

Your salary is $50,000/yr. Your employer provides a 401(k) plan with a 75% match up to 6%. Calculate your match and total deposit to your account this year if you contribute 2%, 6%, and 12% of your salary to your 401(k).

Example Solution:

If you contribute 2% of your salary, that 2% * $50,000 = $1,000. The potential match is 75% of that amount, so 75% * $1,000 = $750. The maximum match is the match rate * the match limit * your salary. In this case, that's 75% * 6% * $50,000 = $2,250. Now we compare the potential match to the maximum match. The potential match is less than the maximum match ($750 < $2,250), so you will receive $750 in match. The total amount that will be deposited in your 401(k) will be your contribution of $1,000 plus the $750 match made by your employer = $1,750 total deposit.

The tables below show the math for this calculation, as well as for the 4% and 6% contribution.

Watch it in Action!

Practice Problems

1. Employer A offers you a 401(k) match of 100% up to 2% of your $61,000 income. If you contribute $1,600 to your 401(k) this year, how much free money will your employer contribute to your 401(k) this year?

2. Employer B offers you a 401(k) match of 60% up to 11% of your $40,000 income. If you contribute $2,200 to your 401(k) this year, how much free money will your employer contribute to your 401(k) this year?

3. Employer C offers you a 401(k) match of 30% up to 12% of your $85,000 income. If you contribute $8,200 to your 401(k) this year, how much free money will your employer contribute to your 401(k) this year?

4. Employer D offers you a 401(k) match of 60% up to 6% of your $68,000 income. If you contribute $2,400 to your 401(k) this year, how much free money will your employer contribute to your 401(k) this year?

5. Employer E offers you a 401(k) match of 40% up to 4% of your $59,000 income. If you contribute $3,500 to your 401(k) this year, how much free money will your employer contribute to your 401(k) this year?

6. Employer F offers you a 401(k) match of 60% up to 7% of your $70,000 income. If you contribute $4,900 to your 401(k) this year, how much free money will your employer contribute to your 401(k) this year?

7. Employer G offers you a 401(k) match of 40% up to 8% of your $115,000 income. If you contribute $10,100 to your 401(k) this year, how much free money will your employer contribute to your 401(k) this year?

8. Employer H offers you a 401(k) match of 90% up to 7% of your $61,000 income. If you contribute $2,600 to your 401(k) this year, how much free money will your employer contribute to your 401(k) this year?

9. Employer I offers you a 401(k) match of 30% up to 2% of your $83,000 income. If you contribute $2,300 to your 401(k) this year, how much free money will your employer contribute to your 401(k) this year?

10. Employer J offers you a 401(k) match of 90% up to 8% of your $56,000 income. If you contribute $5,800 to your 401(k) this year, how much free money will your employer contribute to your 401(k) this year?

Solutions

1. The max match = $1,220. The potential match = 100% * $61,000 = $1,600. Since the max match is less than the potential match, the employer will contribute $1,220 to your 401(k) this year.

2. The max match = $2,640. The potential match = 60% * $40,000 = $1,320. The potential match is less than the max match, so the employer will only contribute $1,320 to your 401(k) this year.

3. The max match = $3,060. The potential match = 30% * $85,000 = $2,460. The potential match is less than the max match, so the employer will only contribute $2,460 to your 401(k) this year.

4. The max match = $2,448. The potential match = 60% * $68,000 = $1,440. The potential match is less than the max match, so the employer will only contribute $1,440 to your 401(k) this year.

5. The max match = $944. The potential match = 40% * $59,000 = $1,400. Since the max match is less than the potential match, the employer will contribute $944 to your 401(k) this year.

6. The max match = $2,940. The potential match = 60% * $70,000 = $2,940. The potential match is less than the max match, so the employer will only contribute $2,940 to your 401(k) this year.

7. The max match = $3,680. The potential match = 40% * $115,000 = $4,040. Since the max match is less than the potential match, the employer will contribute $3,680 to your 401(k) this year.

8. The max match = $3,843. The potential match = 90% * $61,000 = $2,340. The potential match is less than the max match, so the employer will only contribute $2,340 to your 401(k) this year.

9. The max match = $498. The potential match = 30% * $83,000 = $690. Since the max match is less than the potential match, the employer will contribute $498 to your 401(k) this year.

10. The max match = $4,032. The potential match = 90% * $56,000 = $5,220. Since the max match is less than the potential match, the employer will contribute $4,032 to your 401(k) this year.