Hi All,

I will be joining a new job in the coming weeks and have a question as to how I should be taking advantage of their contribution matching program. So the 401k programs I am use to matches each dollar you contribute to retirement up to a certain percentage of your total income (e.g. the company will match each dollar you contribute up to 5% of your total salary).

However, with my new job, the program will only match up to 33% of your contributions depending on the performance of the company (up to a max contribution of 9%). So if the company hits a low operating income, they will only match 11% of your total contributions (max 9%), but if they hit a high operating income, they will match a max of 33% of your contributions. So basically, their matching program is variable depending on the company's performance.

Also, the company will be vesting these matching contributions over the course of 4 years (25% of matches/yr).

What I am unsure about is how I should go about taking advantage of this program vs. aggressively paying off my school debt. At my current rate I have about 1.5 years left to pay off my $40k of loans (and I REALLY want to pay these loans off ASAP, their ineterst rates range from 2.5% - 5.65%).

Should I hold off on contributing to my 401k with my new company until I pay off my student loans (and redirecting that money to loans) or stick with a solid 5% contribution to the 401k regardless of the matching?

Thanks!

So the max hypothetical match of 9%, assuming they hit the 33% target, would mean you'd have to contribute 27% of your paycheck to the 401k?

Ya, it's confusing to explain (and other people I've talked to had the same exact response lol)

It's actually set up such that (assuming the company has a good year), they will match 33% of my total contributions (up to a maximum contribution of 9% of my salary). So if I contribute 3% for a year, they will contribute 2%, if I contribute 9%, they will contibute 3%, if I contribute 18%, they will contribute 3% (because the max contribution they will match is 9%)

So if i want the maximum amount of matching funds (or max amount of free money), two things must happen:

1. I contribute 9% of my income
2. The company has a good year

Can you afford to put 9% into your 401(k) and still pay extra on your student loans?
Are you on track for your retirements savings given your age and income?
How often has the company paid out the various matching levels in previous years?
Are you able to deduct the student loan interest on your taxes?

Yeah, you can't go wrong if you can contribute 9%, so that's what I'd do. Even when I was paying off debt I put in 8% (max matched) to the 401k for my employer to match. And truthfully, its far easier to become comfortable with an affordable lifestyle if you never see the money than if you start off with 0% going to the 401k and try to make up for it later.

Those making over $194k get a "raw" deal on a good year.

Someone will probably point out that making $194k is far from a "raw" deal, but these things matter.

What does this have to do with this thread? Did the OP state on another thread that s/he has a $194k income?

I pretty much agree with Nelson: 9% is almost certainly not too much to save. Also, while you have to be careful with student loans (since they are not dischargeable in bankruptcy), the interest rates on the loans in question are relatively low. And, per the info given, it seems that every 1% up to 9% is matched at least 11%, which isn't terrible. So it does seem in this case, based on the information given so far, that contributing to the 401(k) up to match is probably a good idea.

But then again... how are the fees on the plan? Some plans are bad enough that an 11% match is not enough to make them worth using. It's the exception, but it does happen. (And I suspect but have no data to prove that companies with discretionary matches, are more likely to have otherwise poor plans.)

I'd go up to the 9% then put the rest towards your school debt. even in a bad year, free money is free money. As long as you pay school loans of in a reasonable timeframe, i'd say it's not bad debt. You have to remember that if you miss one year of contributing to retirement, it's not one years appreciation you lose, it's decades worth. Since you can't contribute for past years, it's pretty unlikely that any other interest rate will be so high that it will be more than 40 years of appreciation that you'd get in your retirement fund.