401k Recovery Advice

Making Salary Deferral Contributions - Part 1

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In Brief...

Example 1 John's taxable income for the year is $31,000, and he wants to save $2,000 towards his retirement. Example 2 John works for ABC Company, which agrees to make a matching contribution of 50 cents on every dollar, up to 6% of each employee's compensation. If John contributes $2,000 from his paychecks throughout the year, John will receive an additional $1,000 contribution to his 401(k) account from ABC Company (50% of $2,000). If John wants to receive the maximum 6% of his compensation ($1,860) that ABC would contribute to his 401(k) account, John must defer $3,720. Had John chosen not to make any salary-deferral contributions, he would lose not only the opportunity to reduce his taxable income and the benefit of tax-deferred growth, but also the matching contribution from his employer.

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