Maximizing the match, or maximizing the plan?
How often do you hear “choose your words carefully” or “what you say matters?” This is phrase is true when referring to your retirement plan and taking advantage of the matching benefit that you may have available, as outlined in your employer contract.
When you say “I want to max out” or “I am doing the maximum” are you really contributing the maximum?
When I hear someone say they are maxing out or want to max out their contribution, this means contribute the maximum IRS limit ($19,500 for anyone under age 50, and $26,000 age 50+ in 2020).
Yet, what often is meant by the investor, is they are contributing (or want to contribute) the maximum match amount, which is typically between $250 and $2,000 per year.
Two reasons I point this out:
- Often, investors don’t think they are allowed contribute more than the match. This is misinformation! Think of the employer match amount as the incentive needed for employees to start saving for retirement. As mentioned above, the IRS limits are substantially higher.
- While $250 - $2,000 a year and having this amount matched dollar-for-dollar is nice; is saving $500 - $4,000 a year enough to achieve your retirement goals? Most articles discussing retirement saving, encourage investing about 15% gross salary towards retirement. Gross salary is income before taxes and deductions are withheld. You can calculate what percentage you are contributing by using this formula:
Your retirement contribution + employer contribution / gross salary.
Gross (contracted) salary $45,000.
Employer match $500 per year.
Employee contribution $500 per year.
$500 + $500 / $45,000 = 2.2% towards retirement.
Words become reality. Don’t let your words hold you back from your goals.
Content in this material is for general information for education purposes and is not intended to provide specific advice or recommendations for any individual. All investing involves risk including loss of principal. No strategy assures success or protects against loss. 1-05073325