The Cost of Missing Out: How Supersavers Miss Out on 401(k) Matches
For many individuals, participating in a 401(k) savings plan is an important part of preparing for retirement. Employers often offer a matching contribution to employees who contribute to their 401(k), which can significantly boost retirement savings over time. However, some “supersavers” may inadvertently cheat themselves out of these matching contributions by contributing too much or front-loading their contributions early in the year.
Supersavers are individuals who contribute the maximum amount allowed to their 401(k) each year, currently $19,500 for those under 50 and $26,000 for those 50 and older. While it’s commendable to save diligently for retirement, contributing the maximum amount early in the year can mean missing out on employer matching contributions later in the year, as many employers only match contributions made each pay period.
For example, if an employer matches 50% of contributions up to 6% of a participant’s salary, contributing the maximum amount early in the year could result in missing out on matching contributions for the remaining months of the year if no additional contributions are made. In this scenario, maximizing contributions too early could effectively reduce the amount of total matching contributions received.
To ensure that they maximize their employer’s matching contributions, supersavers should consider spreading out their contributions evenly throughout the year rather than front-loading them. This way, they can take advantage of the matching contributions offered by their employer for each pay period.
Additionally, some supersavers may inadvertently exceed the annual contribution limit if they receive a year-end bonus or other unexpected income that pushes them over the maximum limit. In this case, they may need to request a refund of the excess contribution, which can be a hassle and could result in tax consequences.
To avoid cheating themselves out of 401(k) matching contributions, supersavers should carefully review their employer’s matching policy and contribution limits. By spreading out contributions evenly throughout the year and by keeping an eye on their annual contribution limit, supersavers can maximize their retirement savings while taking full advantage of their employer’s matching contributions.
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