The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: tcbonline on July 25, 2016, 10:35:08 AM

Somebody please help me do a calculation example using this forumla below. I'm a bit perplexed by it. When I asked a potential employer what they matched for 401k this is what they wrote back...
"Company matches 100% for the 1st percent and then matches 50% for 26% for a total match of 3.5%"
I'm getting hung up on the 26% part. I'm more used to seeing company matching stated as something like 50% at 3.5% ... simple, right? I don't get all the 26% part at all. Should I ignore that and just figure the 3.5% total?
So let's take some concrete numbers to help me understand this:
if you take a yearly salary of 100k, say I contribute 6% myself at $6000. What would be the company match contribution for the year given the formula above?
Sorry if I'm totally brain dead, let me know if you guys can figure out what this means better than me.
Thanks,
tcb

If someone contributes 1%, the company matches that 1%. If someone contributes 2%, the company matches the first percent and half of the second percent, for a total of 1.5%. And so on, up to 6%. For someone who contributes 6%, the company would do a full match of the first percent and half of the rest up to 6%, for a total of 3.5% contribution by the company.

So let's take some concrete numbers to help me understand this:
if you take a yearly salary of 100k, say I contribute 6% myself at $6000. What would be the company match contribution for the year given the formula above?
In this scenario your company would contribute $3500. ($1000 to match your first 1% and $2500 to half match your next 5%). This lines up with the 3.5% number too.

So let's take some concrete numbers to help me understand this:
if you take a yearly salary of 100k, say I contribute 6% myself at $6000. What would be the company match contribution for the year given the formula above?
In this scenario your company would contribute $3500. ($1000 to match your first 1% and $2500 to half match your next 5%). This lines up with the 3.5% number too.
And if you contribute the 18% so as to put the maximum of your allowed portion in 2016 (i.e. $18,000) the company will still contribute $3500.

The first percent is fully matched (1%). Then the next 26% are matched at 50%. So, for example, if you were to contribute 6%, you'll get 1% for your first 1% plus 2.5% which is 50% your next 5%. So 3.5% total. Here's a little chart showing your contribution and what you would get for the first 1%, then the next 26% and your total match.
Cont First % Next 26% Total Match
1% 1 0 1.0%
2% 1 .5 1.5%
3% 1 1.0 2.0%
4% 1 1.5 2.5%
5% 1 2.0 3.0%
6%+ 1 2.5 3.5%