Will I Lose the Company Match if I Max My Roth IRA?

Summary

Ramsey Everyday Millionaires: Episode Summary
Title: Will I Lose the Company Match if I Max My Roth IRA?
Host/Author: Ramsey Network
Release Date: January 10, 2025

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Introduction

In this episode of Ramsey Everyday Millionaires, the hosts address a listener's concern about balancing personal retirement contributions with employer-sponsored 401(k) matching. The discussion primarily revolves around whether maxing out a Roth IRA could impact the company match in a Roth 401(k) plan. Hosted by Jade Warshaw, with insights from Dave Ramsey and contributions from other Ramsey Network hosts, the conversation delves into effective strategies for optimizing retirement savings without forfeiting valuable employer contributions.

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Listener's Inquiry: Balancing Roth IRA and 401(k) Contributions

Timestamp [00:22 - 01:38]

The episode kicks off with a listener, Scott from Las Vegas, reaching out with a pertinent question regarding retirement savings:

Scott [00:29]: "...if I were to put, let's say 15% of my income and I hit the IRS cap, will that negatively affect how my company match for the remainder of the year where I'm not actually giving any money?"

Scott is contemplating whether maximizing his Roth 401(k) contributions early in the year might limit his company's ability to match contributions later on, potentially affecting his overall retirement savings strategy.

Jade Warshaw's Initial Response [00:29 - 02:10]:

Jade emphasizes that the specifics of employer matching are determined by individual company policies rather than federal regulations:

Jade Warshaw [00:29]: "That's a question for your company, your HR team. That's not a regulation."

She advises Scott to consult his HR department to understand how his company handles matching when the IRS contribution limits are reached prematurely.

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Understanding Employer Matching Policies

Timestamp [02:10 - 02:38]

Jade elaborates on how different companies structure their matching contributions:

Jade Warshaw [02:10]: "Some companies match up to a certain amount. Some companies match all the way through. We match a percentage regardless of what you put in when, regardless of when you put it in."

She highlights that some employers offer a fixed match based on the total annual contribution, irrespective of the timing, while others may have specific periods during which they match contributions.

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Strategizing Contribution Timing for Maximum Employer Match

Timestamp [02:38 - 04:15]

Jade advises that if an employer's matching policy spans the entire year, it might be beneficial to spread out contributions to ensure consistent matching:

Jade Warshaw [02:38]: "If you have to drag it out to get the full match, I would drag it out."

She contrasts this with the mathematical advantage of front-loading contributions:

Jade Warshaw [04:15]: "You should do it in January is the answer mathematically, because the entire amount is earning throughout the entire year, rather than a portion of it earning each month more."

However, she acknowledges the risk if the market experiences downturns, which could affect the effectiveness of front-loading investments.

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Balancing Employer Match and Investment Growth

Timestamp [04:15 - 05:45]

The discussion transitions to the trade-offs between maximizing employer matches and the potential growth of investments:

Jade Warshaw [04:15]: "But it only works when it's going up. And overall, we know it's gonna go up."

She emphasizes the importance of securing the full employer match as it's often considered "free money" that outweighs the benefits of maximizing investment contributions early in the year.

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Intentional Financial Planning and Generational Wealth

Timestamp [04:23 - 07:48]

Jade shifts the conversation to the broader theme of intentionality in financial planning, sharing personal anecdotes to underscore the significance of focusing on wealth-building and generosity rather than superficial pursuits:

Jade Warshaw [04:23]: "Most people don't think about it. So the fact that he's maxing it out, the fact that he's thinking through that is really, really great."

She recounts a story about her friend's upbringing, highlighting how discussions around money, generosity, and investing contributed to their family's financial success:

Jade Warshaw [05:01]: "Generosity and investing and value purchases, not cheapo purchases...long-term decision."

Further, she illustrates the contrast between meaningful financial conversations and superficial interests, emphasizing the value of cultivating a culture that prioritizes financial responsibility and intentional wealth management.

Additional Insights from Co-Hosts [05:33 - 07:48]:

Other hosts contribute to the conversation by reinforcing the importance of focusing on personal financial health over external distractions like pop culture:

Unknown Host [05:45]: "You need to be thoughtful about that. But that's the same thing of Scott being intentional."

They discuss the pitfalls of being overly influenced by celebrities and external factors, advocating for a more inward-focused approach to financial stability and relationship building.

Jade shares an anecdote to illustrate misplaced enthusiasm and priorities:

Jade Warshaw [06:28]: "I was at a Titans football game...He yelled and screamed like the world was coming to an end...if he was as enthusiastic about his career or his marriage as he is about watching these young kids...he would probably have a good life."

This story underscores the importance of channeling passion and energy into areas that truly matter for long-term happiness and success.

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Conclusion: The Value of Intentional Financial Decisions

The episode wraps up by reinforcing the central theme: intentionality in financial planning is crucial for building and maintaining wealth. By thoughtfully balancing personal retirement contributions with employer matches and fostering a mindset centered on generosity and long-term value, individuals can emulate the financial success of everyday millionaires.

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Notable Quotes

• Scott [00:29]: "...if I were to put, let's say 15% of my income and I hit the IRS cap, will that negatively affect how my company match for the remainder of the year where I'm not actually giving any money?"
  [00:29]

• Jade Warshaw [02:38]: "If you have to drag it out to get the full match, I would drag it out."
  [02:38]

• Jade Warshaw [04:15]: "You should do it in January is the answer mathematically, because the entire amount is earning throughout the entire year..."
  [04:15]

• Jade Warshaw [05:01]: "Generosity and investing and value purchases, not cheapo purchases... long-term decision."
  [05:01]

• Jade Warshaw [06:28]: "...if he was as enthusiastic about his career or his marriage as he is about watching these young kids... he would probably have a good life."
  [06:28]

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Final Thoughts

This episode of Ramsey Everyday Millionaires serves as a valuable resource for listeners navigating the complexities of retirement planning. By addressing real-world questions and providing actionable insights, the hosts empower individuals to make informed decisions that align with both their immediate financial goals and long-term wealth-building strategies.

Transcript

[Dave Ramsey]

This episode is sponsored by SmartVestor. Connect with an investing pro for free at RamseySolutions.com invest. You're listening to Ramsey Everyday Millionaires where we talk investing, retirement, building wealth and outrageous generosity.

[Jade Warshaw]

Scott's in Las Vegas. Hey, Scott, what's up?

[Scott]

Hi, how are you? Dave, longtime listener. I really appreciate you guys taking my call.

[Jade Warshaw]

Sure.

[Scott]

I came across a question today for investing purposes on my Roth 401K. My coworkers and I were looking for next year and looking at setting things up and the question came up about if I were to put, let's say 15% of my income and I hit the IRS cap, let's say October or November, will that negatively affect how my company match for the remainder of the year where I'm not actually giving any money? I don't know if it's a number that's going to be a fixed number regardless. Will the company 6% match be the same if I hit it in October or if I were to spread it out over smaller increments throughout the, the 26 paychecks?

[Jade Warshaw]

That's a question for your company, your HR team. That's not a regulation.

[Scott]

How they would be able to.

[Jade Warshaw]

It's not a regulation.

[Scott]

I didn't know if it was a way to be able to calculate that, to be able to look at even previous because a couple years I had made, I'd hit that number in October and then the last two years let me have a little bit more money in my pocket throughout the course and I spread it out with a little bit lower number and let it hit the last paycheck in December. And I didn't know if that was going to be from a negative impact. If I were to just, I think.

[Jade Warshaw]

You could look at the total for that year, total invested by you and then the total match and divide it and tell what the percentage was.

[Scott]

Right, right. Sure. Exactly.

[Jade Warshaw]

And see, that would tell you what you're sacrificing. Yeah. I mean some companies match up to a certain amount amount. Some companies match all the way through. We match a percentage regardless of what you put in when, regardless of when you put it in. And so I mean, I've got some high income earners that fully fund theirs in the first quarter.

[Scott]

Right.

[Jade Warshaw]

And then they just don't, they don't have that because they can't, they max it out completely. They're not allowed to put any more than that in. And so not by us, but by regulation. And then we match that as they do it whenever they do it, whatever they do same, but that's a company decision as to how the match is done. And if you have to drag it out to get the full match, I would drag it out.

[Scott]

Makes sense if you need to reach out to them and find out how they distribute that money.

[Jade Warshaw]

Yeah. If you need to do 12 even months to get the full match, then do the 12 even months because the match is more valuable than the early portion of the investing. But that brings up another interesting thing, Jade, that sometimes people ask is, should I spread my personal Roth over 12 months or just do it in January? You should do it in January is the answer mathematically, because the entire amount is earning throughout the entire year, rather than a portion of it earning each month more. That's right. Well, what if the market went down? Well, if the market goes down, none of this works. So it only works when it's going up. And overall, we know it's gonna go up. It could go up or down in the, you know, short term, but. Yeah. So, Scott, that's a. That's an HR and payroll and whoever's managing your 401k at your company question, and you could get a hint before you even call them by looking at the percentage they gave or the dollars they gave last year as a percentage of what you put in last year, and see if that matches their standard match rate. And that would tell you, you know, if you're looking like 6%, then you go, okay, you know, I put in $10,000 irregularly, but they still put in, you know, 6% of that 600 bucks. And so, you know, or whatever the number is. But that's. You can still look at that and figure that out. So. Very cool. Very cool. Good stuff, man. That's a great question, by the way. And here's the neat thing about all this. People like him. It's not the answer to this technical question that matters. What matters is he's actually thinking about it.

[Unknown]

I was gonna say that, you know.

[Jade Warshaw]

Most people don't think about it.

[Unknown]

They're not. Yeah, they don't think about it. So the fact that he's maxing it out, the fact that he's thinking through that is really, really great.

[Jade Warshaw]

Yeah, really great. The intentionality, you know, one of the things. I've got a friend that his dad was the governor of Tennessee in the 1950s, and so he's in his 70s now, but he was a little kid in short pants in the governor's mansion in the 1950s. And, you know, I had a great discussion with him one night he said the discussion in our family table growing up was politics. And he said, you know what rich people talk about at the family table? Generosity and investing and value purchases, not cheapo purchases.

[Unknown]

All the important things you can do.

[Jade Warshaw]

With money, long term decision. And so a rich kid grows up with a silver spoon because their parents got rich because they were concentrating on money, not obsessed by it, not worshiping it. Like my friend's family didn't worship politics, they weren't obsessed by it, but they were in that world. It's what they did. And it made me realize that's how, you know, if you grow up. I've got a cousin that's a car dealer and guess what? He owns a bunch of cars. I wonder why.

[Unknown]

Yeah, I think you end up talking about the things that are of value to you in your life, whether it's your religious beliefs, moral beliefs, hobbies, whatever that is. That's what you talk about, that's what you pass down.

[Jade Warshaw]

You need to be thoughtful about that. But that's the same thing of Scott being intentional. What's him and his friends sitting around the lunch table talking about? Not other people's careers, carrying a football.

[Unknown]

Well, let me tell you, talking about.

[Jade Warshaw]

Their careers and how they're going to build wealth.

[Unknown]

I think that's one of the. I mean, we kind of talked about this early, but if you're, if you're on social media and you know more about P. Diddy and you know more about other celebrities finances and you know more about what you know so and so is driving and you don't even know about your own stuff. You don't know the state of your own affairs. You don't care that much about your own financial situation, about your own relationships. That's a. Yeah, it's a red flag.

[Jade Warshaw]

It's backwards.

[Unknown]

It really is more into pop culture than your own culture.

[Jade Warshaw]

I was at a Titans football game one time, a long, long time ago, and the seats were not great. And the guy in front of us was a large man, spacious without a shirt. Oh, and had painted his big self blue with a big titan thing on his chest. And he yelled and screamed like the world was coming to an end. On every play he cussed the coach.

[Unknown]

You didn't like that.

[Jade Warshaw]

And on every play he cussed the players. And I told my wife, I said, if he was as enthusiastic about his career or his marriage as he is about watching these young kids down here playing football, he would probably have a good life. Wrong dose, you know.

[Unknown]

Yeah, you gotta channel it to the right?

[Jade Warshaw]

Cause, I mean, I'm sorry, I get it. If you're in college and you and your buddies all have too many beers and paint letters on your chest and take your clothes off or whatever. I get that. Take your shirts off anyway. I get that. I don't get 56 years old. Ooh, yeah. And obese. I don't get that one. Okay. It's just gross. All right. I'm just saying it. Just saying it. For all the rest of us out there.

[Dave Ramsey]

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