Source: Forbes
Suppose Dana makes $240,000 per year and gets paid bi-monthly. Her employer matches 100% of the first 6% of income that she defers to the company’s 401k plan. Dana is an aggressive saver and elects to defer 25% of her compensation to the 401k plan—resulting in contributions of $2,500 each pay period. Her employer kicks in a $600 match each pay period, which is 6% of $10,000 gross pay. Dana reaches her 2019 contribution limit of $19,000 on her eighth paycheck at the end of April.
Because she hits the contribution limit on April 30 and makes no contributions to the plan after this date, Dana also gets no employer matching contributions after this date. As a result, Dana’s total employer match for 2019 is $4,800. That’s $600 match per pay period times eight pay periods.
Dana continues making the same contributions each year for the next 15 years and earn a 7% annual investment return. Because she’s contributing money early in the year, Dana benefits more from investment growth on her employee contributions. Specifically, she earns an additional $45,950 in market gains over the 15 years by getting her $19,000 invested earlier each year.
How did Dana get an additional $45,950. I don't understand the math they did to get this figure. Using simple compound interest formula A = P(1 + r/n)[sup]n[/sup][sup]t[/sup] or $19,000(1+0.07/1)[sup]1\[/sup]15) returns
$ 52,421. Accounting for principle, isn't that just an addition $ 33,421? How are they calculating $45,950?
Suppose Dana makes $240,000 per year and gets paid bi-monthly. Her employer matches 100% of the first 6% of income that she defers to the company’s 401k plan. Dana is an aggressive saver and elects to defer 25% of her compensation to the 401k plan—resulting in contributions of $2,500 each pay period. Her employer kicks in a $600 match each pay period, which is 6% of $10,000 gross pay. Dana reaches her 2019 contribution limit of $19,000 on her eighth paycheck at the end of April.
Because she hits the contribution limit on April 30 and makes no contributions to the plan after this date, Dana also gets no employer matching contributions after this date. As a result, Dana’s total employer match for 2019 is $4,800. That’s $600 match per pay period times eight pay periods.
Dana continues making the same contributions each year for the next 15 years and earn a 7% annual investment return. Because she’s contributing money early in the year, Dana benefits more from investment growth on her employee contributions. Specifically, she earns an additional $45,950 in market gains over the 15 years by getting her $19,000 invested earlier each year.
How did Dana get an additional $45,950. I don't understand the math they did to get this figure. Using simple compound interest formula A = P(1 + r/n)[sup]n[/sup][sup]t[/sup] or $19,000(1+0.07/1)[sup]1\[/sup]15) returns
$ 52,421. Accounting for principle, isn't that just an addition $ 33,421? How are they calculating $45,950?