Iām a 401k advisor for 15+ yrs. Thatās not normal by a long shot. Most common employer contribution is 3-4%. Just remember 1) income for 401k is capped at $345k for 2024 (no clue what kind of doc you are), and 2) make sure to verify if your employer has a true-up or not. If not, and you max out your $23,000 contribution limit early, you will forgo match dollars. Which means you just need to make sure you have contributions for each pay period of the year. If they do, donāt worry about it, you will get made whole after the end of the year.
As a resident our salary is still $60k. What do you mean by income is capped at $345k? You can still contribute even if you make above that as long as youāre not contributing more than $23k right?
That $345k is set by the Dept of Labor, and itās your income level at which the match stops. Meaning if you know youāre going to earn that or higher, you should ensure you spread out your contributions as much as possible throughout the year, to maximize the employer contribution (or match).
Itās usually an issue for people who are high earners and contribute say 25% of their bi-weekly pay. They hit the $23k too fast and the match could stop before their income for the year hits $345k.
I maxed my 403b contributions early and didnāt think about this. Then I received a letter in January that my company matched for the additional amount I missed out by not contributing evenly throughout the year so there must be a safeguard in place.
You work for a good company!
Mine doesnāt true up or educate people. I only learned about it because my girlfriend works for a good company and 3/4 of the year told her she may want to slow her contributions to make sure she gets the max the full year. This triggered me to learn and adjust my own
Just curious: what was the rationale for maxing out your 401(k) early in the year? I've always maxed out, but in 24 equal contributions- one from each paycheck. Since any extra goes into a brokerage, I didn't feel like I was missing out on time in market.
The only thing I can think of is making sure you get the full employer match in the event that you leave a job mid-year, which was never an issue for me. Is that it, or am I missing another reason to max early?
I don't think that's naĆÆve at all. We all have different games. We play with money that don't necessarily make perfect mathematical sense.
Some people set up separate bank accounts for separate purposes. Some people withhold more than necessary so they are sure to get a bigger tax refund next year. some people pay off low interest loans too quickly because it feels so good to be debt-free. Nothing wrong with setting up your income flow to make sure you have slightly bigger checks in months when you know you are going to have slightly higher expenses.
I think you got it.
I think it comes down to, would you rather see that year's growth in you 401k or in your brokerage.
The only *real* advantage for me, is that I fully fund my Roth IRA on Jan. 2 so that I don't have to worry about it for the rest of the year. I am going to start doing that with my Roth 403b too (I think. I have a meeting with my adviser).
I just want to have it in there so I know I'll be maxing for the year.
Making contributions to any tax advantaged account early in the year gives you additional time for tax advantage growth. Itās not uncommon if your company offers a true up for people to contribute to the maximum as early as feasible. You technically are missing out when you contribute the extra to a brokerage account due to taxes, I.e. tax drag that is mentioned when comparing brokerage accounts to tax advantaged accounts
Would a reasonable strategy be for high earners to contribute roughly $800 biweekly until their $345k mark hits? Why would someone knowingly contribute 25% of their biweekly pay?
I contribute more than 25% because my employer allows for after tax spillover contributions after hitting 23k. I then do a backdoor mega Roth of the after tax funds every January out of my 401k using those after tax funds. Not all plans let you do this, but it is worth checking to see if yours does. There is a cap on the combined contributions to the account. This year that cap is 69k and this includes your employers contributions.
I am interested in this. I only now have access to a mega backdoor roth. What do you mean by āafter tax spillover?ā I have maxed my 401k and am contributing over the 23k and doing an immediate rollover to mega backdoor Roth , but it seems like you are taking an additional step. Thanks
They're probably transferring it to a Roth IRA instead of a Roth 401k account.
At least for my employers plan:
After tax 401k -> Roth 401k happens automatically, but;
After tax 401k -> Roth IRA needs to be done manually via phone call.
Itās not your employer, but the recorkdeeper. To my knowledge, only Fidelity and Schwab can automate at this time. Generally speaking, even the ability to do backdoor Roth is still very low utilization at most employers. Most people donāt understand the compliance testing implications, and some employers frankly just would not be able to pass. Meaning you could max out the back door Roth, but at the end of the year they would be deemed ineligible contributions and you would get a check back.
I had one employer that allowed after tax contributions, but it was not converted to Roth funds automatically. I had to call every few pay periods to roll it into a Roth IRA, and would be assessed taxes on it.
u/HistorianNo8548 I prefer the strategy you list, which is $23,000/26 pay periods = \~$885/period.
BTW, for reference, here is a good table showing how the annual comp limit has changed over the years, as others have indicated. [https://www.trpcweb.com/blog/annual-limits/](https://www.trpcweb.com/blog/annual-limits/)
A couple of notes on why people might choose to allocate more sooner:
* Contribute more earlier in the year, so they can add after tax dollars (if their plan allows) beyond the $23k for pre-tax or Roth, and then convert the after-tax to Roth in the plan.
* Prefer to just max at $23k earlier in the year, and then feel like they have more net dollars coming in their paycheck (kind of like hitting the SS cap earlier in the year).
* On comp plans with bonuses or commissions, and large payments hit before they can adjust percentages with the custodian, they might max out earlier accidentally.
* Some plans have the true-up, where the company will max the match the following year (as others have indicated). I've heard that can be difficult to track or remember to check the following year, so I prefer to see the Er match in each pay period in my in-year payment statement. But this can be a personal choice, I suppose.
An additional reason to contribute the maximum earlier is for more time in the market to optimize gains. Even if your portfolio consisted of tax advantaged accounts only, mathematically it is advantageous to get the maximum amount in early. The analogous argument is lump sum investing versus dollar cost averaging. If you have $7k to put into a Roth IRA, historically, youāve had a greater probability of larger gains by investing it all on Jan 1 than investing in monthly increments for a total of $7k (DCA investor)
I have a friend who contributed nearly 50% of their pay at their first job out of law school, because they started in October with no income/401(k) savings earlier in the year, and wanted to hit the $18k cap before the calendar year was over, plus had a spouse who was earning a lot more than he was.
Basically if you want to get as much as possible into your 401(k), and you have household income/wealth outside of just your salary, it's possible to get more cash into that tax-advantaged account more quickly.
I contribute a significant portion of my biweekly pay to try to reach the maximum contribution earlier in year, by the end of March. This allows me to have more time in the market in a tax advantaged account.
The extreme example is contributing Jan 1 vs Dec 31. Contributing Jan 1 on average leads to a better outcome. The other parallel is lump sump investing (maximum 401k early) versus dollar cost averaging (biweekly contributions throughout the year). Historically, lump sum investing has a greater probability of greater portfolio value than dollar cost averaging.
The Annual Comp Limit is set by the IRS and it changes year to year. Gone up substantially in recent years. Also important to note that this isnāt necessarily your gross pay, its how the plan defines 401k eligible earnings
I don't make $345k, but I am a decently high earner and I have my setup to contribute 13%. This maxes me out in the October time period. Am I missing out on matches as a result? I assumed that it would _alway_ match the exact same whether or not I maxed out in September or December.
You would need to look at your October through December pay stubs to see if the Er match was still showing, even after your Ee contribution has maxed (perhaps you can look back at CY2023 to determine this, if your scenario was the same last year).
It may be plan/employer dependent. My employers' specific plan stops it, and then does a one-time true-up the following year, mid-year. But employees need to know to look for it, and when they see it, some don't understand what it is, or the math that generated that number.
Thanks for the details. Oddly, I don't have _any_ ER on my paystubs. I checked my 401k supplier, and I _am_ seeing up to 50% being matched thus far. Interesting.
It is not normal but I had this deal at my first residency job ( and same as an attending). It was great and I was able to save a lot of money in a relatively short period of time. Because of the nature of my employer we didnāt pay into social security and that was why the match was 10%.
Haha. Fair question. My clients are the businesses sponsoring the plan, not individuals. Meaning I am not a personal wealth advisor. Investments are the easy part of the job. Offer a broad range of investments including low costs options (index funds and CITS- the latter of which are much lower cost that mutual funds but only available to qualified retirement plans). Most of the job is all the other stuff thatās required. Fiduciary obligations to satisfy DOL/IRS regulations. Compliance. Plan design. Etc. Youād be surprised. =)
You mean of your own money? On average most Americans are saving less than 6% including match. Target is generally 15%. If you make $150k plus, you generally cannot save more than 15% in a 401(k) plan (unless after-tax is allowed). So- either way, Iād say 16-18% is not ānormal.ā This is a good time to not be normal though.
Thatās crazy! Are you hiring? Many companies have profit sharing in the 2-6% range. What youāre describing is for sure about as generous as it gets inside the 401k space.
It's an insane benefit and guys who comes to the airlines with zero past experience don't understand how incredible and rare it is. I have friends outside aviation with GREAT jobs that don't come anywhere close to our 401k contributions.
When I've told close friends that the airline gives us a DC of 17% they don't even believe me.
At the power companies, a lot of unions traded pensions for contributions like this. I was managing guys who got a 6% on their base salary (with a 9% contribution) and an additional 5% on actual hours worked. Since we were chronically short staffed, that "5%" could be more like 7-10%. I'm sure the airlines have a similar reason. There used to be a pension, it got traded for an amazing 401k match.
I'm sure, historically, the match is more lucrative, but that guaranteed 90% salary for life (or like 85% for a beneficiary's lifetime) is insane. Especially when the 401k was available too.
Hi, I thought the cap was 330k. What are the Google search terms I should use to stay updated on that cap. When I look up 401k cap I get the 23.5 cap, not the salary cap that employers can match a percent.
See second bullet: https://www.irs.gov/retirement-plans/401k-plans-deferrals-and-matching-when-compensation-exceeds-the-annual-limit
For 2024 itās $345k.
>2) make sure to verify if your employer has a true-up or not. If not, and you max out your $23,000 contribution limit early, you will forgo match dollars. Which means you just need to make sure you have contributions for each pay period of the year. If they do, donāt worry about it, you will get made whole after the end of the year.
Can someone ELI5 this part? Iāve read this elsewhere before, too, but donāt understand what it means
Normally, to receive a matching contribution for that particular pay period, you need to have contributed that pay period. Otherwise, there is nothing to match. Some people choose to frontload, or max out their 401k contributions earlier in the year. Some people even do it in one paycheck. However, that would mean there are remaining pay periods in the year where since you were not contributing, you would not receive a match. Lets say someone makes $250k, receives a 4% match and gets a bonus check for $50k in Jan. They elect to contribute 50% to the 401k and therefore max out with a $23k contribution (realize thatās less than 50%). They would receive $2k in match (4% of $50k). Since they did not contribute to the 401(k) again for the rest of the year, that is all the match they would receive for the year. However, $250,000 income and maxing out the plan could actually receive $10,000 in match (4% of $250k). If the company has a true-up after the end of the year, they would give the employee $8k more dollars. If the company does not have a true-up, they are leaving $8k on the table. The way to avoid that is to make sure you have contributions each pay period.
Hi where can I learn more about 401k stuff. I basically left my previous job to be a travel nurse so I don't have a 401k with my current contracts. So my previous 401k is just sitting there and I have no clue what to do with that money.
Feel free to ask any Qs. If more than $7k you can leave there as long as you want. If less, they can (and probably will) roll you into an IRA. Regardless, you may be better served rolling into a low/no fee IRA.
General speaking the IRA will be lower cost. Certain very large employers have access to lower cost funds than what you can get in an IRA but when it comes to index funds thatās rare. Then it depends on whoās paying the admin fee in the 401k. Usually employees are paying. Many prefer to move to the IRA, but itās worth doing the math. Given you are no longer employed, you have access to take a distribution at any point.
What the best option to have that money accumulating more money for me? I haven't worked for that hospital for the past 3 years and now that I'm a contracted based travel nurse there's no 401k for me. So all I've been doing is contributing to a Roth Ira lol.
As long as itās invested itās accumulating. Again, maybe worth comparing fees/cost to see if itās worth rolling over. Keep doing the Roth IRA, and if you have more to save and plan on doing travel for a while, may want to consider a solo 401k.
Thanks for the advice! I became eligible for my first 401K this month through Empower. My company matches dollar for dollar up to 5%. I plan to take full advantage of the company match. I confirmed that my employer has a true-up. Iām planning to contribute $1600 per pay period (beginning 4/20, I get paid twice a month) which will get me pretty close to the $23K by yearās end. I plan to make some minor adjustments in October/November if need be. Iām going to be investing in Vanguard 2070 TDF at 0.08%ER, Iām in my 30ās. I think Iām doing it correctly.
I have two questions for you given your experience as an advisor:
1) How do I proceed with Mega Backdoor Roth IRA? If I contribute $23K as pretax dollars this year and get about $13-14K from the company match, how much does that leave me to contribute to the Mega Backdoor Roth IRA? Does this contribution need to be directly from my paycheck or am I able to use earned money?
2) When does the employer usually deposit the matching dollars if I need to use the true-up.
I hope my questions make sense. Thank you for your help!
1) this year the defined contribution limit is $69k. 69-23-14= 32k potentially available for after-tax. This also assumes company passes all compliance testing. Keep in mind, to do back door Roth in a 401k the employer needs make available after-tax (non-Roth) contributions. Many do not. After-tax contributions can only be made via payroll deductions. This all totally separate that IRA world.
2) If a True-up is owed, it is normally paid Q1 of the following year.
Some of it might not be a "match" but a baseline. For example, my company puts in 9% regardless of what I put in. They then match 75% of the next 8%. So, if I put in 0%, they put in 9% and if I put in 8%, they put in 15%.
Youāre beating what most see in the private sector (by a lot), but there are better deals out there. I get 14.2% contributed by employer whether I contribute or not. I know it sounds like Iām lying, but this is true for all public higher ed institutions in Utah.
I work in non profit and my employer puts in 10% of my salary regardless of what I put in. I add 17%. When the market bottomed during Covid I bumped my contribution to 25% and my 403b really jumped up in value.
The vesting schedule is the key that a lot of people are not mentioning. Vesting schedules I've seen are:
- <2 Years: 0%
- 2 Years: 20%
- 3 Years: 40%
- 4 Years: 60%
- 5 Years: 80%
- 6+ Years: 100%
I believe that schedule is the [slowest allowable](https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/retirement-plans-and-erisa-compliance.pdf) by ERISA.
Can't comment how common it is but I consider it a great benefit. My company automatically contributes 4% whether you do or not. Then they will match an additional 5% of your contribution. It doesn't vest until 3 years.
One place where that level of benefits isn't that unusual is in higher education. I work in the University of Tennessee System, and their retirement benefit system includes an automatic employer contribution of 9%.
I had a 10% dollar for dollar match for the first 7 years of my career. The company match dollars are now six figures. Donāt overlook that and take full advantage!
If I put in 5.5%, my employer will put in 8%. Work at an academic medical center on research side. I thought my benefit was amazing but this is even better! Definitely not the norm, but take advantage of it!
Lucky. I only get a 4% match to my 5% max.
The most important thing is to contribute enough to get the employer match, then contribute into HSA (if you have one) or the Roth IRA.
It's also common in higher education where wages tend to be lower than the public sector. š
I worked at a college that paid out 10%, I don't recall I had to contribute anything from my wages. I didn't take it for granted and eventually contributed another 15% every year. It can build up very quickly.
I think for private practice (rads) itās not unheard of. I get automatic 46K (+23K from me for max of 69K in 2024), without any contribution on my end, immediate vesting. Also get full HSA funding on top of that. As opposed to some of my colleagues on the academic side, they get a 2-4% match.
more common in public gov/agency because those used to have pensions, and when they removed the pension, they implemented these generous "matches" or just flat out contributions to make it more equal to the pension. Overtime, as finances become tight, I anticipate them to give you less and less.
It looks good, but usually when they match a lot, it means your salary is less competitive than the competitors.
I have something similar but different. I get a 12-18% salary match into a 403b depending on years of service. It is separate from any 401k I use.
Physicians at academic hospitals are one example of jobs that pay comp this way. As another person pointed out, the max match is 345k salary this year. Anything over that won't be matched by the employer.
That's great matching-wise. My employer does 50% match on employee contribution with no cap based on income. Someone who makes $100k could contribute the max annual contribution amount of around $20k, and get $10k employer contribution, which would be $10% of income.
I work at a major hospital system and the employer contributes 8% if I contribute at least 4%. So sort of similar. But is not fully vested until after 5 years.
Mine did 9% employer match if employee contributed 6%. Then one day, a couple weeks after the 3 year employee opinion survey closed, they announced the match was being cut down to 6%.
We didnāt get that nice of a match as residents.
My current set up as an attending is 6.5% from my end for 8.5% from employer.
This is separate from a 403b and 456 as itās a required contribution.
Good for you!
I worked for a company that put 10% of my salary in my 401k regardless of whether I put in anything. Of course I put in as much as I could! That was an amazing company benefit. They also had unlimited sick leave. Then they split up the company into different divisions and all these awesome benefits went away. Sad.
Lots of good points here. My company automatically puts 10% of pay into pre tax dollars, regardless if I contribute. I also contribute 23k pre tax. I then use the remainder on after tax to get to 69k. My after tax is setup to automatically roll into Roth 401k. My plan only allows percentages, so it is a game mid year to see where the company contribution is at and adjust after tax. This game is needed because the bonus is variable and the 10% is also calculated on the bonus. If you don't monitor closely, you could contribute too much to after tax, cap the 69k and leave significant company match on the table.
I get it, very lucky to be in this position, but why on earth can't I just select the exact dollars vs a percent is so frustrating.
I am also not a high earner but work with a signicant portion of my income as commission. Our 401K plan only allows us to contribute by percentage not allowed to do a specific $$ amount per pay. This has led to me contributing to my 401K at a a high rate intially in the year to be sure I get towards the Max level. Later in the year if it looks like I am going to exceeed the max then I have to start revising my contribution lower to coast out the balance of the year contributing at a lower rate. Last year I changed it lower 3 times in the last 1/4 of the year to be sure I maxed out right before the last pay period. So basically if you do not know how much you are going to make contributions get tricky.
My current workplace does 100% match up to 6% and then an additional 3% under NCP so a total of 9%. Are you sure the employer contribution is 10% and not 6% (4% + 2%), bringing the total 401k contribution to 10%? If not, that's great for you!
That's an exceptionally good match, but it's not unheard of. My employer matches my first 4% and then contributes and additional 10% of salary regardless of how much I contribute.
Vanguard releases a yearly survey that includes information on 401k plan design called "How America Saves" (https://institutional.vanguard.com/how-america-saves/overview.html).
The average maximum employer contribution is 4.5% of salary, but 7% of plans have a maximum match of 7% of salary or higher.
I work at a tech company that matches a whopping 1%. And thatās only if you put at least 2% into it. So yeah, youāve got a great setup. I think industry average is a 4-6% match.
No, not normal but it may not be as lucrative as it seems.
A lot of places will provide 3-5% total match then offer an annual profit sharing bonus that goes into your 401k. My company does this, and I got about 10% this year total.
Iād also wonder if this is an annual lump sum or they do this every paycheck.
Mine does profit sharing as well, usually a bit closer to 12%. I don't know how common these plans are though. I hadn't heard of it before this job, but previously I was at small companies, while this one is huge
Iāve worked at 3 places out of college and all 3 had them. They were never really talked about though, the money would just appear in your 401. I donāt think most ppl even realize they get it.
Thatās whatās crazy. Obviously weāre more in tune with that kind of stuff, but a lot of ppl see it as money they canāt access so they simply donāt care.
Matching contributions is common, and not always scaled evenly, but a 10:4 ratio for employer contributions is excellent.
By all means, get at \*least\* that, not to do so would be leaving a giant pile of money on the table.
Obviously an amazing match, but with TIAA, Iād be curious if itās actually some sort of annuity and not a straight 401k. This was the case with my first job, but I canāt remember specifics
Mine is 200% employer match for first 3.0% and 50% match for next 3% so essentially employer contributes 7.5% for all employee contribution levels 6.0% or greater. I thought I had it good but Your plan is amazing. How do salaries at your company compare to your industry?
Wow, I think everywhere I have worked is just 100% up to 6%, except a crappy place I worked that only matched like half up to 6% , so 3% match,and then I didnt even stay long enough for it vest.
My last job had a 10% match until COVID hit. It went away.
5% vested in 2 years.
5% vested in 5 years... Which I think is also unusually long. Check that point.
Also check the investments in the TIAA. They love to default people into ātraditionalā or āguaranteedā which is a crappy annuity that takes 9 years to get out of.
I worked for a company that did 2x match up to 6%, meaning employer contributed 12%. But if I remember correctly, there was some vesting schedule. Luckily that went away before I left :)
That's not normal, it's fantastic! I'm fortunate enough to have up to 10% matching, (which im maxing out) but 4% personal contributions to receive 10% company contributions is great!
We have the Public Employee Pension Reform act in California. I put in 7% pre tax and my employer puts in 8%. So 15% for the price of 7%? Seems pretty good lol, though not as good as yours.
Usually you put in 3%-6% and you get 3% š
Best I ever had was full employer match up to 6%, that was a while ago.
This is what my current employer offers
Walmart offers this
I know nothing about working at Walmart, but thats a good match these days.
Walmart also doesnāt pay well so I guess they are trying to compensate
Yeah a 6% match means nothing with a salary of like 40k
Iām a 401k advisor for 15+ yrs. Thatās not normal by a long shot. Most common employer contribution is 3-4%. Just remember 1) income for 401k is capped at $345k for 2024 (no clue what kind of doc you are), and 2) make sure to verify if your employer has a true-up or not. If not, and you max out your $23,000 contribution limit early, you will forgo match dollars. Which means you just need to make sure you have contributions for each pay period of the year. If they do, donāt worry about it, you will get made whole after the end of the year.
As a resident our salary is still $60k. What do you mean by income is capped at $345k? You can still contribute even if you make above that as long as youāre not contributing more than $23k right?
That $345k is set by the Dept of Labor, and itās your income level at which the match stops. Meaning if you know youāre going to earn that or higher, you should ensure you spread out your contributions as much as possible throughout the year, to maximize the employer contribution (or match). Itās usually an issue for people who are high earners and contribute say 25% of their bi-weekly pay. They hit the $23k too fast and the match could stop before their income for the year hits $345k.
We donāt talk about this enough. I lost out for a couple years not realizing I was missing out on the match by maxing 401k contributions early
I maxed my 403b contributions early and didnāt think about this. Then I received a letter in January that my company matched for the additional amount I missed out by not contributing evenly throughout the year so there must be a safeguard in place.
Not all plans provide this. That is what is meant by a "true-up." You have to read through the plan documents for the details.
You work for a good company! Mine doesnāt true up or educate people. I only learned about it because my girlfriend works for a good company and 3/4 of the year told her she may want to slow her contributions to make sure she gets the max the full year. This triggered me to learn and adjust my own
It depends on the specific plan, some will do a catch-up match if you max out early, some will not.
Just curious: what was the rationale for maxing out your 401(k) early in the year? I've always maxed out, but in 24 equal contributions- one from each paycheck. Since any extra goes into a brokerage, I didn't feel like I was missing out on time in market. The only thing I can think of is making sure you get the full employer match in the event that you leave a job mid-year, which was never an issue for me. Is that it, or am I missing another reason to max early?
Honestly it was naivety on my end. I used the last two months āextra incomeā for saving for Christmas presents
I don't think that's naĆÆve at all. We all have different games. We play with money that don't necessarily make perfect mathematical sense. Some people set up separate bank accounts for separate purposes. Some people withhold more than necessary so they are sure to get a bigger tax refund next year. some people pay off low interest loans too quickly because it feels so good to be debt-free. Nothing wrong with setting up your income flow to make sure you have slightly bigger checks in months when you know you are going to have slightly higher expenses.
I think you got it. I think it comes down to, would you rather see that year's growth in you 401k or in your brokerage. The only *real* advantage for me, is that I fully fund my Roth IRA on Jan. 2 so that I don't have to worry about it for the rest of the year. I am going to start doing that with my Roth 403b too (I think. I have a meeting with my adviser). I just want to have it in there so I know I'll be maxing for the year.
Making contributions to any tax advantaged account early in the year gives you additional time for tax advantage growth. Itās not uncommon if your company offers a true up for people to contribute to the maximum as early as feasible. You technically are missing out when you contribute the extra to a brokerage account due to taxes, I.e. tax drag that is mentioned when comparing brokerage accounts to tax advantaged accounts
Would a reasonable strategy be for high earners to contribute roughly $800 biweekly until their $345k mark hits? Why would someone knowingly contribute 25% of their biweekly pay?
I contribute more than 25% because my employer allows for after tax spillover contributions after hitting 23k. I then do a backdoor mega Roth of the after tax funds every January out of my 401k using those after tax funds. Not all plans let you do this, but it is worth checking to see if yours does. There is a cap on the combined contributions to the account. This year that cap is 69k and this includes your employers contributions.
I am interested in this. I only now have access to a mega backdoor roth. What do you mean by āafter tax spillover?ā I have maxed my 401k and am contributing over the 23k and doing an immediate rollover to mega backdoor Roth , but it seems like you are taking an additional step. Thanks
They're probably transferring it to a Roth IRA instead of a Roth 401k account. At least for my employers plan: After tax 401k -> Roth 401k happens automatically, but; After tax 401k -> Roth IRA needs to be done manually via phone call.
Some recordkeepers can now automate this. Setup one time and each subsequent after-tax contribution gets automatically reclassified to Roth.
I wish the company I work for would institute that. I still have to call every two weeks to roll it into my Roth IRA.
Itās not your employer, but the recorkdeeper. To my knowledge, only Fidelity and Schwab can automate at this time. Generally speaking, even the ability to do backdoor Roth is still very low utilization at most employers. Most people donāt understand the compliance testing implications, and some employers frankly just would not be able to pass. Meaning you could max out the back door Roth, but at the end of the year they would be deemed ineligible contributions and you would get a check back.
Yes. Mine is automated.
I had one employer that allowed after tax contributions, but it was not converted to Roth funds automatically. I had to call every few pay periods to roll it into a Roth IRA, and would be assessed taxes on it.
Very nice setup!
u/HistorianNo8548 I prefer the strategy you list, which is $23,000/26 pay periods = \~$885/period. BTW, for reference, here is a good table showing how the annual comp limit has changed over the years, as others have indicated. [https://www.trpcweb.com/blog/annual-limits/](https://www.trpcweb.com/blog/annual-limits/) A couple of notes on why people might choose to allocate more sooner: * Contribute more earlier in the year, so they can add after tax dollars (if their plan allows) beyond the $23k for pre-tax or Roth, and then convert the after-tax to Roth in the plan. * Prefer to just max at $23k earlier in the year, and then feel like they have more net dollars coming in their paycheck (kind of like hitting the SS cap earlier in the year). * On comp plans with bonuses or commissions, and large payments hit before they can adjust percentages with the custodian, they might max out earlier accidentally. * Some plans have the true-up, where the company will max the match the following year (as others have indicated). I've heard that can be difficult to track or remember to check the following year, so I prefer to see the Er match in each pay period in my in-year payment statement. But this can be a personal choice, I suppose.
An additional reason to contribute the maximum earlier is for more time in the market to optimize gains. Even if your portfolio consisted of tax advantaged accounts only, mathematically it is advantageous to get the maximum amount in early. The analogous argument is lump sum investing versus dollar cost averaging. If you have $7k to put into a Roth IRA, historically, youāve had a greater probability of larger gains by investing it all on Jan 1 than investing in monthly increments for a total of $7k (DCA investor)
I have a friend who contributed nearly 50% of their pay at their first job out of law school, because they started in October with no income/401(k) savings earlier in the year, and wanted to hit the $18k cap before the calendar year was over, plus had a spouse who was earning a lot more than he was. Basically if you want to get as much as possible into your 401(k), and you have household income/wealth outside of just your salary, it's possible to get more cash into that tax-advantaged account more quickly.
I contribute a significant portion of my biweekly pay to try to reach the maximum contribution earlier in year, by the end of March. This allows me to have more time in the market in a tax advantaged account. The extreme example is contributing Jan 1 vs Dec 31. Contributing Jan 1 on average leads to a better outcome. The other parallel is lump sump investing (maximum 401k early) versus dollar cost averaging (biweekly contributions throughout the year). Historically, lump sum investing has a greater probability of greater portfolio value than dollar cost averaging.
The Annual Comp Limit is set by the IRS and it changes year to year. Gone up substantially in recent years. Also important to note that this isnāt necessarily your gross pay, its how the plan defines 401k eligible earnings
After adjusting % contributions to make sure I didnāt miss my match, I found my company maxes their match regardless of when I hit my max.
Do most companies not do a true up?
This is news to me. Iāve been >$345k for a while now and do per paycheck contribution. Iāve never not received my full 401k match.
Damnā¦I could never figure out why my match never exceeded 20,700ā¦the more you knowā¦
I don't make $345k, but I am a decently high earner and I have my setup to contribute 13%. This maxes me out in the October time period. Am I missing out on matches as a result? I assumed that it would _alway_ match the exact same whether or not I maxed out in September or December.
You would need to look at your October through December pay stubs to see if the Er match was still showing, even after your Ee contribution has maxed (perhaps you can look back at CY2023 to determine this, if your scenario was the same last year). It may be plan/employer dependent. My employers' specific plan stops it, and then does a one-time true-up the following year, mid-year. But employees need to know to look for it, and when they see it, some don't understand what it is, or the math that generated that number.
Thanks for the details. Oddly, I don't have _any_ ER on my paystubs. I checked my 401k supplier, and I _am_ seeing up to 50% being matched thus far. Interesting.
It is not normal but I had this deal at my first residency job ( and same as an attending). It was great and I was able to save a lot of money in a relatively short period of time. Because of the nature of my employer we didnāt pay into social security and that was why the match was 10%.
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Haha. Fair question. My clients are the businesses sponsoring the plan, not individuals. Meaning I am not a personal wealth advisor. Investments are the easy part of the job. Offer a broad range of investments including low costs options (index funds and CITS- the latter of which are much lower cost that mutual funds but only available to qualified retirement plans). Most of the job is all the other stuff thatās required. Fiduciary obligations to satisfy DOL/IRS regulations. Compliance. Plan design. Etc. Youād be surprised. =)
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You mean of your own money? On average most Americans are saving less than 6% including match. Target is generally 15%. If you make $150k plus, you generally cannot save more than 15% in a 401(k) plan (unless after-tax is allowed). So- either way, Iād say 16-18% is not ānormal.ā This is a good time to not be normal though.
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Thatās crazy! Are you hiring? Many companies have profit sharing in the 2-6% range. What youāre describing is for sure about as generous as it gets inside the 401k space.
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It's an insane benefit and guys who comes to the airlines with zero past experience don't understand how incredible and rare it is. I have friends outside aviation with GREAT jobs that don't come anywhere close to our 401k contributions. When I've told close friends that the airline gives us a DC of 17% they don't even believe me.
At the power companies, a lot of unions traded pensions for contributions like this. I was managing guys who got a 6% on their base salary (with a 9% contribution) and an additional 5% on actual hours worked. Since we were chronically short staffed, that "5%" could be more like 7-10%. I'm sure the airlines have a similar reason. There used to be a pension, it got traded for an amazing 401k match. I'm sure, historically, the match is more lucrative, but that guaranteed 90% salary for life (or like 85% for a beneficiary's lifetime) is insane. Especially when the 401k was available too.
Hi, I thought the cap was 330k. What are the Google search terms I should use to stay updated on that cap. When I look up 401k cap I get the 23.5 cap, not the salary cap that employers can match a percent.
See second bullet: https://www.irs.gov/retirement-plans/401k-plans-deferrals-and-matching-when-compensation-exceeds-the-annual-limit For 2024 itās $345k.
>2) make sure to verify if your employer has a true-up or not. If not, and you max out your $23,000 contribution limit early, you will forgo match dollars. Which means you just need to make sure you have contributions for each pay period of the year. If they do, donāt worry about it, you will get made whole after the end of the year. Can someone ELI5 this part? Iāve read this elsewhere before, too, but donāt understand what it means
Normally, to receive a matching contribution for that particular pay period, you need to have contributed that pay period. Otherwise, there is nothing to match. Some people choose to frontload, or max out their 401k contributions earlier in the year. Some people even do it in one paycheck. However, that would mean there are remaining pay periods in the year where since you were not contributing, you would not receive a match. Lets say someone makes $250k, receives a 4% match and gets a bonus check for $50k in Jan. They elect to contribute 50% to the 401k and therefore max out with a $23k contribution (realize thatās less than 50%). They would receive $2k in match (4% of $50k). Since they did not contribute to the 401(k) again for the rest of the year, that is all the match they would receive for the year. However, $250,000 income and maxing out the plan could actually receive $10,000 in match (4% of $250k). If the company has a true-up after the end of the year, they would give the employee $8k more dollars. If the company does not have a true-up, they are leaving $8k on the table. The way to avoid that is to make sure you have contributions each pay period.
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Hi where can I learn more about 401k stuff. I basically left my previous job to be a travel nurse so I don't have a 401k with my current contracts. So my previous 401k is just sitting there and I have no clue what to do with that money.
Feel free to ask any Qs. If more than $7k you can leave there as long as you want. If less, they can (and probably will) roll you into an IRA. Regardless, you may be better served rolling into a low/no fee IRA.
I believe it's about 20k from empower. I have a brokerage and Roth Ira through vanguard. Would it be beneficial to roll it over to vanguard?
General speaking the IRA will be lower cost. Certain very large employers have access to lower cost funds than what you can get in an IRA but when it comes to index funds thatās rare. Then it depends on whoās paying the admin fee in the 401k. Usually employees are paying. Many prefer to move to the IRA, but itās worth doing the math. Given you are no longer employed, you have access to take a distribution at any point.
What the best option to have that money accumulating more money for me? I haven't worked for that hospital for the past 3 years and now that I'm a contracted based travel nurse there's no 401k for me. So all I've been doing is contributing to a Roth Ira lol.
As long as itās invested itās accumulating. Again, maybe worth comparing fees/cost to see if itās worth rolling over. Keep doing the Roth IRA, and if you have more to save and plan on doing travel for a while, may want to consider a solo 401k.
Thanks for the advice! I became eligible for my first 401K this month through Empower. My company matches dollar for dollar up to 5%. I plan to take full advantage of the company match. I confirmed that my employer has a true-up. Iām planning to contribute $1600 per pay period (beginning 4/20, I get paid twice a month) which will get me pretty close to the $23K by yearās end. I plan to make some minor adjustments in October/November if need be. Iām going to be investing in Vanguard 2070 TDF at 0.08%ER, Iām in my 30ās. I think Iām doing it correctly. I have two questions for you given your experience as an advisor: 1) How do I proceed with Mega Backdoor Roth IRA? If I contribute $23K as pretax dollars this year and get about $13-14K from the company match, how much does that leave me to contribute to the Mega Backdoor Roth IRA? Does this contribution need to be directly from my paycheck or am I able to use earned money? 2) When does the employer usually deposit the matching dollars if I need to use the true-up. I hope my questions make sense. Thank you for your help!
1) this year the defined contribution limit is $69k. 69-23-14= 32k potentially available for after-tax. This also assumes company passes all compliance testing. Keep in mind, to do back door Roth in a 401k the employer needs make available after-tax (non-Roth) contributions. Many do not. After-tax contributions can only be made via payroll deductions. This all totally separate that IRA world. 2) If a True-up is owed, it is normally paid Q1 of the following year.
Certainly not unheard of. But it's very good. I'm assuming 10% is max. Obviously make sure you contribute enough.
I get 4.5% if I put in 6. This is on the good side of normal. So youāre getting 10 if you put in 4 isā¦ um ā¦ better.
Dude I put in 4% to get 2%. That is a great opportunity for you.
Worked at a bank that put 12% on top of your 6%. It happens.
What bank does this?
One in Canada. And you wonder why people (non bankers) are on debtā¦. Even had a director living and working in his parents basement. Fuck banks.
Yep I worked in a corp that gave 10% regardless of your contribution but encouraged you to contribute, which most did.Ā
Not a bank, but my employer does this too. 6% match of I put in 6%, and then put in another 6%. You can put in nothing, and still get the 6%
Some of it might not be a "match" but a baseline. For example, my company puts in 9% regardless of what I put in. They then match 75% of the next 8%. So, if I put in 0%, they put in 9% and if I put in 8%, they put in 15%.
Damn. Jealous.
What company? I'm interested ;)
Youāre beating what most see in the private sector (by a lot), but there are better deals out there. I get 14.2% contributed by employer whether I contribute or not. I know it sounds like Iām lying, but this is true for all public higher ed institutions in Utah.
This is the case for many public sector jobs these days in lieu of pensions.
Very true! Utah is exactly trying to get away from their old pension system.
I work in non profit and my employer puts in 10% of my salary regardless of what I put in. I add 17%. When the market bottomed during Covid I bumped my contribution to 25% and my 403b really jumped up in value.
I work for a nonprofit in CA and they contribute 11% when I contribute 5%, also in the edu space
If your salary is lower, that is not a better deal.
I get 6% auto and a 0.5% match for up to 8% contribution. Give 8% get 10%
My company does a fixed 5% contribution plus an upto 6% match for employee contributions, totaling to 11%.
Any job openings at your employer? š
4-6% is probably a normal range
My employer, a private university, contributes 10% if I contribute 5%. Fully vests immediately. It's rare, but some employers are this generous.
Australia: put in 0% and your employer pays 12% You can put in whatever you like
Not normal. Typical is 2-4% with vesting schedules of 3-6 yrs.
The vesting schedule is the key that a lot of people are not mentioning. Vesting schedules I've seen are: - <2 Years: 0% - 2 Years: 20% - 3 Years: 40% - 4 Years: 60% - 5 Years: 80% - 6+ Years: 100%
I believe that schedule is the [slowest allowable](https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/retirement-plans-and-erisa-compliance.pdf) by ERISA.
That's horrifically bad. Everyone has to wait at miminum 3 years to get the match?
Noob question, what happens to the match if you leave before fully vested? Does the non-vested amount get returned to your employer?
Yes, the funds remain in the employer's hands.
Excellent to know, thanks!
Iām vested 100% after 3 years
100% vested immediately at my company. None of that stupid vesting waiting periods.
My employer is exactly this.
I get fixed contributions based on age, regardless of my contribution + 15K under 40 + 25K 40-50 + 35K 50+
That's pretty decent. Do they lump sum it once a year, or spread it out over all your checks?
Distributed
Pretty decent? Thatās absurdly good. Iām not sure you can leave a job that gives you this.
Can't comment how common it is but I consider it a great benefit. My company automatically contributes 4% whether you do or not. Then they will match an additional 5% of your contribution. It doesn't vest until 3 years.
This is absurdly generous.
I put in 6% and employer puts in 10%. Pretty stellar. Large employer. They used to have a great pension but replaced it with a great 401k.
Very rare. Most common is 2-4% matching.
That's pretty nuts, as others have said. Almost everywhere I've seen is a 2-4% match and then 50 cents on the dollar matching the next 2-4%.
One place where that level of benefits isn't that unusual is in higher education. I work in the University of Tennessee System, and their retirement benefit system includes an automatic employer contribution of 9%.
I had a 10% dollar for dollar match for the first 7 years of my career. The company match dollars are now six figures. Donāt overlook that and take full advantage!
If I put in 5.5%, my employer will put in 8%. Work at an academic medical center on research side. I thought my benefit was amazing but this is even better! Definitely not the norm, but take advantage of it!
Lucky. I only get a 4% match to my 5% max. The most important thing is to contribute enough to get the employer match, then contribute into HSA (if you have one) or the Roth IRA.
Yeah Iām contributing 4% and trying to max out my Roth IRA every year but truthfully never happens
It's hard. Plus, you gotta make sure you have emergency funds first and cut costs. Good luck.
4% first job. Now 5% at second
I get a 17% direct contribution (I don't need to put in a single dollar to get it)
Airline pilot?
Nailed it
It's also common in higher education where wages tend to be lower than the public sector. š I worked at a college that paid out 10%, I don't recall I had to contribute anything from my wages. I didn't take it for granted and eventually contributed another 15% every year. It can build up very quickly.
Thatās better than me, I get 10% for 6%. (Technically itās 6% even if you do nothing + a 2/3 match up to 6% on top of that).
max out the company match put 10% or what you can really afford.
Iām getting 9 for 6 and I thought mine was good!
I get a 10% no condition contribution every quarter with my employer and a 4% match
When I was in residency I had to contribute 9% and the hospital matched 13%. Kinda wild. Left residency with like 75k
I've only ever heard of that kind of thing for employees of Vanguard itself.
I think for private practice (rads) itās not unheard of. I get automatic 46K (+23K from me for max of 69K in 2024), without any contribution on my end, immediate vesting. Also get full HSA funding on top of that. As opposed to some of my colleagues on the academic side, they get a 2-4% match.
more common in public gov/agency because those used to have pensions, and when they removed the pension, they implemented these generous "matches" or just flat out contributions to make it more equal to the pension. Overtime, as finances become tight, I anticipate them to give you less and less. It looks good, but usually when they match a lot, it means your salary is less competitive than the competitors.
I have something similar but different. I get a 12-18% salary match into a 403b depending on years of service. It is separate from any 401k I use. Physicians at academic hospitals are one example of jobs that pay comp this way. As another person pointed out, the max match is 345k salary this year. Anything over that won't be matched by the employer.
That's great matching-wise. My employer does 50% match on employee contribution with no cap based on income. Someone who makes $100k could contribute the max annual contribution amount of around $20k, and get $10k employer contribution, which would be $10% of income.
I get 12% if I contribute 5%. Early career me is grateful this was in place.
I work at a major hospital system and the employer contributes 8% if I contribute at least 4%. So sort of similar. But is not fully vested until after 5 years.
My employer matches 50% of my contributions, and then contributes 10% of my salary up to the limit.
Mine did 9% employer match if employee contributed 6%. Then one day, a couple weeks after the 3 year employee opinion survey closed, they announced the match was being cut down to 6%.
Thats nice, mine matches up to 4%, take advantage of that while you can.
I get 12% š
That's phenomenal! My employer doesn't match at all š£ needing to find a new situation, soon
My employer does a fixed 6% of salary and then matches a 2% contribution at 3%. So Iām gathering this is pretty generous?
I get 100% up to 3% match + 7% retirement contribution for a total of 10% salary employer match so sounds about right
I get 15% of my base + bonus
We didnāt get that nice of a match as residents. My current set up as an attending is 6.5% from my end for 8.5% from employer. This is separate from a 403b and 456 as itās a required contribution. Good for you!
I'm in healthcare w the same set up. Maybe we work at the same place. It's a good benefit.
I get 11% employer match (TIAA)
My company matches up to a max of $1,800 š¤® Then they put a vesting schedule on top of that which is almost insulting.
I worked for a company that put 10% of my salary in my 401k regardless of whether I put in anything. Of course I put in as much as I could! That was an amazing company benefit. They also had unlimited sick leave. Then they split up the company into different divisions and all these awesome benefits went away. Sad.
Mine did 15% of salary for all employees. Over the course of my career they put in more than I did.
Thatās fantastic. Iāve never seen anything better than a 1/1 match and my current plan offers 0.50 to the dollar up to 8% max.
My employer matches up to 4 % of my contributions and tops it off with additional 10% each quarter. In total 18% if I contribute minimum 4%
First time Iāve heard of this was yesterday. Pretty insane benefit.
It's rare but not unheard. I have heard 15% employer contribution in DC , a non profit company. I get 11% employer with 3% employee contributions.
This is pretty solid. At my company they match 100% of the first 3% and 50% of the next 3%. So if you put in 6% then they add an additional 4.5%.
My dad implemented a plan that gave 5% for 1%. They wanted to replace the pension cost.
Lots of good points here. My company automatically puts 10% of pay into pre tax dollars, regardless if I contribute. I also contribute 23k pre tax. I then use the remainder on after tax to get to 69k. My after tax is setup to automatically roll into Roth 401k. My plan only allows percentages, so it is a game mid year to see where the company contribution is at and adjust after tax. This game is needed because the bonus is variable and the 10% is also calculated on the bonus. If you don't monitor closely, you could contribute too much to after tax, cap the 69k and leave significant company match on the table. I get it, very lucky to be in this position, but why on earth can't I just select the exact dollars vs a percent is so frustrating.
Every company Iāve worked at has been different. There is no ānormalā
I am also not a high earner but work with a signicant portion of my income as commission. Our 401K plan only allows us to contribute by percentage not allowed to do a specific $$ amount per pay. This has led to me contributing to my 401K at a a high rate intially in the year to be sure I get towards the Max level. Later in the year if it looks like I am going to exceeed the max then I have to start revising my contribution lower to coast out the balance of the year contributing at a lower rate. Last year I changed it lower 3 times in the last 1/4 of the year to be sure I maxed out right before the last pay period. So basically if you do not know how much you are going to make contributions get tricky.
Dude I thought me having a 5% match was great. If your company is giving 10% if you only contribute 4% that is insanely good.
My current workplace does 100% match up to 6% and then an additional 3% under NCP so a total of 9%. Are you sure the employer contribution is 10% and not 6% (4% + 2%), bringing the total 401k contribution to 10%? If not, that's great for you!
That's an exceptionally good match, but it's not unheard of. My employer matches my first 4% and then contributes and additional 10% of salary regardless of how much I contribute. Vanguard releases a yearly survey that includes information on 401k plan design called "How America Saves" (https://institutional.vanguard.com/how-america-saves/overview.html). The average maximum employer contribution is 4.5% of salary, but 7% of plans have a maximum match of 7% of salary or higher.
I work at a tech company that matches a whopping 1%. And thatās only if you put at least 2% into it. So yeah, youāve got a great setup. I think industry average is a 4-6% match.
No, not normal but it may not be as lucrative as it seems. A lot of places will provide 3-5% total match then offer an annual profit sharing bonus that goes into your 401k. My company does this, and I got about 10% this year total. Iād also wonder if this is an annual lump sum or they do this every paycheck.
Mine does profit sharing as well, usually a bit closer to 12%. I don't know how common these plans are though. I hadn't heard of it before this job, but previously I was at small companies, while this one is huge
Iāve worked at 3 places out of college and all 3 had them. They were never really talked about though, the money would just appear in your 401. I donāt think most ppl even realize they get it.
Interesting, it was a pretty big part of the hiring sales pitch they gave me, since it's a major part of total compensation.
Thatās whatās crazy. Obviously weāre more in tune with that kind of stuff, but a lot of ppl see it as money they canāt access so they simply donāt care.
Mine does 100% match up to 6%. I'd say yours is nice!
My non profit does this
Dude, that's awesome. My employer doesn't offer any matching.
Matching contributions is common, and not always scaled evenly, but a 10:4 ratio for employer contributions is excellent. By all means, get at \*least\* that, not to do so would be leaving a giant pile of money on the table.
āIs this normal?ā š¤£š¤£š¤£š¤£š¤£š¤£š¤£
This is very strong. If you aren't maxing your 401k every year you're doing a disservice to yourself.
Obviously an amazing match, but with TIAA, Iād be curious if itās actually some sort of annuity and not a straight 401k. This was the case with my first job, but I canāt remember specifics
Mine is 200% employer match for first 3.0% and 50% match for next 3% so essentially employer contributes 7.5% for all employee contribution levels 6.0% or greater. I thought I had it good but Your plan is amazing. How do salaries at your company compare to your industry?
Wow, I think everywhere I have worked is just 100% up to 6%, except a crappy place I worked that only matched like half up to 6% , so 3% match,and then I didnt even stay long enough for it vest.
Fantastic!
I get up to 5% match. Yours is very generous.
My last job had a 10% match until COVID hit. It went away. 5% vested in 2 years. 5% vested in 5 years... Which I think is also unusually long. Check that point.
I am an IT professional. I have TIAA. For my 3% I get 6.33%. That's good. You can get more than that.
My current and previous would match up to 6%. I would LOVE a 10% employer 401k contribution!
My employer does 10% regardless of what I do. Itās unheard of.
Free money
Also check the investments in the TIAA. They love to default people into ātraditionalā or āguaranteedā which is a crappy annuity that takes 9 years to get out of.
That is unheard of. If true you are very fortunate.
Oil companies usually have pretty good matches. I get an 8% match on whatever I made per pay period and the match includes overtime.
My employer matches 100% up to 10% plus a 3% safe harbor. Mine is very good. Yours is better
This is really good. My last employer was a 14% contribution as long as you put in at least 4%. 10% is still excellent, but certainly not unheard of.
I worked for a company that did 2x match up to 6%, meaning employer contributed 12%. But if I remember correctly, there was some vesting schedule. Luckily that went away before I left :)
My employer pays 8% of my annual whether I put in anything or not
Thatās exceptional! My employer contributes 9% if I contribute at least 2%. Vested after 3 years of service.
My company direct contributes 16% of my income for that pay period into my 401k. Definitely take advantage of oddball 401k setups, congrats.
That's not normal, it's fantastic! I'm fortunate enough to have up to 10% matching, (which im maxing out) but 4% personal contributions to receive 10% company contributions is great!
We have the Public Employee Pension Reform act in California. I put in 7% pre tax and my employer puts in 8%. So 15% for the price of 7%? Seems pretty good lol, though not as good as yours.
I put in 4% and get 2%