BY KIMBERLY LANKFORD
Q: I’ve been contributing to my 401(k), and my employer matches a portion of my contributions. Does the $18,000 maximum for contributions include the employer match, or does it apply only to my individual contributions? Is it too late to increase my contributions to get the full employer match by the end of the year?
A: The $18,000 maximum (or $24,000, if you’re age 50 or older) applies only to your contributions. The overall maximum for 2017, which includes the employer match, is $54,000 ($60,000 if you’re 50 or older), even though it would be very unusual for your employer to add that much money to your account.
Match calculations vary by 401(k) plan. But the average match in plans administered by Fidelity Investments is 4.5% of a worker’s pay. This is a great time of year to review your 401(k) contributions and make sure you’re getting as much money as possible from your employer. About 20% of people don’t contribute enough to get the full match, says Fidelity’s Meghan Murphy.
The procedures for changing your contributions vary by plan, but you can usually make revisions online or by calling the plan administrator at any time. Your new contribution level will generally take effect within two pay periods, says Murphy. Find out how your employer calculates the match before deciding how to boost your contributions. Some limit how much they’ll match per pay period, so if you add a lot of money all at once, you may not get the full match. In that case, you should spread your extra contributions out over the rest of the year.
Be careful not to contribute more than the annual limit. Your plan administrator usually tracks the amount you contribute for the year, so that you don’t accidentally cross the limit when you boost the money you put in. But it’s a good idea to keep track of the amount yourself, too. And it’s particularly important to monitor contributions if you’ve changed jobs in 2017 and your new plan administrator doesn’t know how much you’ve put away in your old employer’s plan for the year.
This is also a good time to make sure you’re taking advantage of catch-up contributions if you’re 50 or older. You can contribute up to an extra $6,000 anytime in the year you turn 50. No need to wait until your birthday.