How to Calculate the Upper Payment Limit for Matching Funds
One of the chief advantages of investing in a 401k plan at work is the availability of matching funds from your employer. Failing to invest the maximum required to get those matching funds is literally like leaving free money sitting on the table. Calculating the maximum amount of matching funds to which you are entitled will make your investment planning more effective.
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Instructions
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Pull a copy of your most recent pay stub and look at the gross pay listed on the form. Multiply that amount by the number of pay periods, for example 26 for an every-two-week pay cycle or 24 for a twice-a-month schedule. The result is your annual salary.
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Multiply your annual salary by the maximum percentage of contributions your employer matches. For instance, if your annual salary is $30,000 and your employer matches contributions up to 6 percent of your salary, the employer match would be based on a maximum of $1,800 (30,000 x .06 = 1800).
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Multiply the percentage of the match by the amount you calculated in the previous step. For instance, if your employer matches 50 percent of contributions up to a maximum of 6 percent of your pay, the maximum employer match would be $900 (1800 x .50 = 900). Failing to contribute at least 6 percent of your gross pay to the company 401k plan is like giving up a free $900 each year.
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References
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