Maximizing Your 401(k) Plan: How Much Can You Contribute?

Understanding Ian's 401(k) Plan Contributions

Ian participates in a 401(k) plan at work where his employer matches a percentage of his contributions. For every $1 Ian contributes to the plan, his employer adds 50 cents. The employer contributions stop after employees contribute $2,500 to the plan.

Last year, Ian consistently contributed $75 to his 401(k) plan each week. To calculate the total amount of contribution (employee + employer) to his plan last year, we need to consider the following:

1. Ian's weekly contribution: $75

2. Number of weeks in a year: 52

Calculating Ian's total contribution:

Each week, Ian contributed $75. Multiplying this by the number of weeks in a year, we get:

$75 x 52 = $3,900

Calculating Ian's Employer's total contribution:

For every $1 contributed by Ian, his employer adds 50 cents. The employer contribution stops after Ian has contributed $2,500. Therefore, the employer's maximum contribution is calculated as:

50% of $2,500 = $1,250

Adding both Ian's and his employer's contributions together:

$3,900 (Ian's contribution) + $1,250 (Employer's contribution) = $5,150

Therefore, the total amount of contribution (employee + employer) to Ian's 401(k) plan last year was $5,150.