Sometimes, being diligent with money—like contributing and maxing out your 401(k)—is not enough to make the most of your investments. A few weeks ago, around September, I noticed that my paycheck was suddenly getting bigger. After a quick look, I realized I had stopped contributing to my 401(k) because I had already reached my 2024 contribution limit.
You’d think that would be a good thing, right? You’re done sacrificing and saving for the year. Well, it turns out, it wasn’t the best strategy for me.
Here’s why: My employer matches 401(k) contributions on a per pay period basis. This is an important question to ask your HR department since some employers match annually, but most do it per pay period.
Since my employer matches on a per-pay-period basis, I started losing out on free money from my employer (the employer match) every two weeks once I stopped contributing to my 401(k) in September. When my contributions stopped, so did my employer’s matching contributions.
You might wonder: Isn’t an employer match supposed to balance out since they match what I contribute anyway? The answer is no. If I contribute, say, $2,000 every paycheck, my employer doesn’t match that full amount. Employers typically match only up to a certain percentage of each paycheck, so contributing more in one period doesn’t increase the match. The match is capped based on regular contributions, not how much you contribute at once.
Let’s Illustrate This with an Example:
Scenario Setup:
- Annual Salary: $60,000
- Employee Contribution Rate: 10% of salary ($6,000 annually)
- Employer Match: 50% of employee contributions up to 6% of salary per pay period
- Pay Periods: 24 pay periods (semi-monthly)
- Contribution Limits: Assume the employee does not exceed IRS annual contribution limits.
| Distributing Contributions Evenly (Per Pay Period) | Front-Loading Contributions (Annually) |
| Employee Contribution per Pay Period:10% of semi-monthly pay ($2,500) = $250 | Employee Contribution per Pay Period (First 6 Periods): $1,000 ($6,000 / 6) |
Employer Match per Pay Period: 50% of the first 6% of $2,500, which is $75 per pay period ($2,500 x 6% = $150; 50% of $150 = $75) | Employer Match per Pay Period (First 6 Periods): 50% of the first 6% of $2,500 = $75 |
| Since there are 24 pay periods in the year: Total Employee Contribution: $250 x 24 = $6,000 Total Employer Match: $75 x 24 = $1,800 | Since the employer matches only when there are employee contributions, the employer will stop matching after the 6th pay period: Total Employee Contribution: $6,000 Total Employer Match: $75 x 6 = $450 |
Comparison of Scenarios:
- Scenario 1 (Even Distribution): $1,800 in employer match
- Scenario 2 (Front-Loading): $450 in employer match
Difference: By distributing contributions evenly throughout the year, I would receive $1,350 more in employer match compared to front-loading my contributions.
The Bottom Line
This is a rare case where saving early and fast doesn’t do you any good. However, it’s still better than not contributing to your retirement at all!
