I wanted to share this story as it is becoming more and more common. When I conduct 401(k) and retirement plan education meetings, the most frequent questions are:
- How much should I be saving and;
- Where should I be invested?
Let’s focus on the first question: How much should I be saving? I met with a participant that was in her early 30’s and married. Her income was $80,000 and her husband’s was $180,000. Her husband was maximizing the contributions into his 401(k), so she wasn’t sure how much she should be contributing to hers. She also mentioned that money for them was a little tight as they were saving for a house. I then asked her what the matching formula was on her husband’s 401(k). She wasn’t sure, so after speaking with her husband, she discovered the match was 50% on the first 6% of salary contributed. The match her company provided was 25% on all salary deferrals.
Ultimately, we came up with the following answer to her question:
Her husband should reduce his contribution to 6% of his salary to take full advantage of his company’s matching contribution. In this case, that amount was $10,800. She should contribute the additional amount needed to get them to the maximum amount her husband was contributing. This amount was $8,700. Any additional contributions to their retirement account should be made by her until she reaches the contribution limits. This will earn them an extra 25% on every $1.00 they contribute to their accounts.
This plan allowed the couple to continue saving $19,500 each year for retirement, but by changing their allocations, they were able to increase the total matching contributions they received. The matching contributions went from $5,400 a year to $7,175 – an increase of $1,775 without changing their previous savings amount.
Remember, money doesn’t have a gender bias. With a little research and advice from your retirement planners, you can ensure you and your spouse are getting the maximum benefit from your employer’s matching contributions. Want to learn more? Connect with our team today: https://qualifiedplanadvisors.com/contact-us/
Securities offered through Private Client Services, Member FINRA/SIPC. Advisory services offered through Prime Capital Investment Advisors, LLC. (“PCIA”), a Registered Investment Adviser. PCIA: 6201 College Blvd., 7th Floor, Overland Park, KS 66211. PCIA doing business as Qualified Plan Advisors (“QPA”) and Prime Capital Wealth Management (“PCWM”). PCIA and Private Client Services are not affiliated.
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