How much will my company match?

[GonGon]

I am a recent college graduate and just landed my first full-time job, so am very new to understanding 401(k)'s and retirement plans. My company says that they will match "up to the first 6% of your pre-tax contributions each pay period." For example, if I contribute $100 every pay period, they will match $6?

 

EDIT:

The rate is as follows:

200% on the first 2% that you contribute per pay period

50% on the next 4% that you contribute per pay period

[RatherBeGolfing]

You are missing a variable.  What is the rate of the match?  could be 100% , 50% or something different.

[david rigby]

I think you are focusing on dollars when the plan defines the employer match using percent(s). Let's try a simple example:

Comp per pay period is $1,000.  You elect to defer 10% (ie, $100).  The company match should be 200% of your first 2% (ie, 200% of $20 = $40), plus 50% of your next 4% (ie, 50% of $40 = $20).  Total company match = $60.

 

[Tom Poje]

And welcome to the business world, and having the smarts to ask, and even finding the web site.

If there were only more people out there that had the sense to realize saving now will make a difference, especially with a generous match like your company has! so if you can manage it, defer at least 6% and get the maximum match you can.

[CuseFan]

Congrats and good luck.

So if you contribute 2% of pay the company gives you 4% of pay (2% x 200%). If you do another 4% (so 6% total), you get another 2% of pay (4% x 50%). So if you do 6% of pay, which you should, you essentially get another 6% of pay from the company - a great deal that you should take advantage of. Finally, and I'm assuming you are fairly young, if your plan has a Roth 401(k) feature and matches Roth deferrals as well, you should make your 401(k) deferrals on that basis. You do not get a tax deduction for Roth (not pre-tax) but your total payout from that account type - including ALL FUTURE INVESTMENT EARNINGS - will be TAX FREE, and don't be too conservative on your investments as time is on your side.

[ESOP Guy]

One other possible thing to think about.  As you get raises increase the amount you defer.  Say after your first year working you get a 2% raise.  Increase your deferral rate by 1%.  You will find your take home pay stays about the same unless things like health insurance premiums go up a bunch. 

If did this when I was young and was so glad.  My wife and I built a good base for retirement.  At one point we were deferring over 10% and really hadn't missed the money.  It built a good base for a retirement.  When the kids came along and we had to go back to the 6% where the company match was max out it was great to have saved while young.