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Assume your employer matches 50% of your contributions in the 401(k) plan up to 6% of...

Assume your employer matches 50% of your contributions in the 401(k) plan up to 6% of your annual salary. If your salary is $80,000, what is the total (employer and employee contributions) in your account balance after 3 years of employment?

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Answer #1

To maximize the benefit of employer contribution, you should contribute entire 6% of your annual salary.

employee contribution = Annual salary*contribution rate = $80,000*6% = $4,800‬

employer contribution = Annual salary*contribution rate*maximum cap rate = $80,000*6%*50% = $4,800‬*50% = $2,400‬

so, total balance in one year will be: employee contribution + employer contribution = $4,800 + $2,400 = $7,200‬

total (employer and employee contributions) in your account balance after 3 years of employment = annual total contribution*no. of years = $7,200‬*3 = $21,600‬

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