If you are a good saver, you know the value of maxing out your 401(k) plan and making sure you get the employer match on your contributions. And if you’re a really good saver, you may be aware of the benefits of front-loading your 401(k) contributions, adding as much as possible to your plan early in the year. Front-loading maximizes your money’s time in the market, which should produce better returns for your 401(k) account in the long run.

a pair of glasses on a table: Don't Miss Out on Free Money by Making This 401(k) Mistake

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Don’t Miss Out on Free Money by Making This 401(k) Mistake

But if you’re not careful with your front-loaded contributions, you could actually be missing out on a portion of your employer match. That’s “free money” you deserve as an employer benefit.


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The mechanics of your 401(k) match

Let’s say you make $80,000 a year in salary. If your employer matches 4% of your salary dollar for dollar, you would assume that you’ll get an employer match on the first $3,200 you contribute to your 401(k). In other words, your account gets an extra $3,200 provided by the employer.

But it doesn’t quite work out that way. Your employer, for instance, doesn’t know if you’ll work 12 full months for the year. It doesn’t know whether you’ll get a raise midyear or if you’ll take lower compensation at some point in the year for extended time off. So, instead of matching your contribution based on your annual salary, employers usually base their matching contributions on your compensation for each pay period throughout the year.

text, letter: An envelope of cash labeled 401k.

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An envelope of cash labeled 401k.

So, that $80,000 annual salary breaks down to 24 pay periods of approximately $3,333 each, and your employer’s 4% match ends up going toward the first $133 or so that