Tips on Maximizing Your 401(k) Match

Save More for Retirement When You Maximize Your Employer Match

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Getting the most out of your employer’s 401(k) match is one of the most important “must do” strategies of retirement planning. It really is a 401(k) match, so it's free money.

You typically only receive a contribution to your 401(k) plan if you make a contribution yourself. However, your company might also match a certain percentage of the amount you contributed to your 401(k) with a portion of your paycheck.

Your company match goes away, potentially leaving a significant amount of money on the table, if you fail to contribute to your available 401(k) plan.

Understanding Your 401(k) Matching Program

Keep in mind that each company's plan can be marginally different. Some employers have very generous matching programs, while others offer relatively paltry matches or no matching program at all.

The average company contribution is typically somewhere in the neighborhood of 3 percent of an employee's pay. Ask your HR representative for an overview of your 401(k) matching program. Here are two common examples and how they work.

  • 50 percent match up to the first 6 percent: Your employer will place 50 cents into your retirement plan for every dollar you put in, up to 6 percent of your gross salary for that year. So, if you earn $50,000 and you contribute at least 6 percent to your 401(k) plan, you'll receive a matching contribution from your employer of $1,500: 6 percent of $50,000 is $3,000, and your employer will contribute half that. If you contribute nothing to the plan, your employer won't match anything.
  • Dollar for dollar match up to 5 percent: Your company might contribute a dollar for every dollar you put in your 401(k) plan until you reach a total of 5 percent of your gross pay contributed for the year. Your employer won’t add any more dollars to your account until the next calendar year after this point.

    A calculator can help you optimize your 401(k) contributions to make the most of your employer match when you know the details of your matching program. Most are either dollar-for-dollar or 50 percent matches.

    Don’t Turn Down "Free" Money

    You're turning down money the company would otherwise provide for your retirement if you fail to contribute to your 401(k) plan up to the amount your employer matches. However, keep in mind that not all employers will begin matching your contributions the very first time you make one. Many wait until you qualify by working there for a prescribed period of time.

    Consider contributing a portion of any pay raises you receive, or any other source of "surprise" money, if you're just starting out and your budget is tight enough to make saving difficult. Settle for a less-than-spectacular cable or streaming service and diverting the money to your retirement instead. Remember, you're investing in your future self.

    You might have to work for your employer for a period of time before the company will begin matching your contributions. Not all matching programs begin immediately.

    401K Match and Annual Limits

    You can’t contribute more than $19,000 of your own money to your 401(k) in 2019, regardless of your company’s matching program. This increases to $25,000 if you're age 50 or older. Employer contributions are not included in your annual contribution limit.

    These are very generous limits compared to other plans, but they can pose a risk for high earners who might meet these limits too early in the year. If you can't contribute any more until the next calendar year, your employer might not contribute anymore either.

    Don't Rely on Auto-Enrollment

    Many employers will automatically enroll new employees into retirement plans. This is a great way to encourage saving for retirement, but auto-enrollment plans can differ a great deal from employer to employer and this might not be in your best interest.

    It's important to understand your employer match to make sure that you aren't leaving money on the table. Some employers will begin auto-enrollment contribution rates below the amount needed to capture the full employer match.

    Beware of Vesting Schedules

    The money you contribute to your 401(k) plan is yours to keep, no matter when or how you terminate employment. However, the contributions made by your employer might be subject to a vesting schedule. You have to work for the company for a specified period of time before you can take your employer's contributions with you when and if you go.

    Make sure you understand your vesting program before you quit your job!

    Don't quit before you become vested!

    There's No Match for IRAs

    No matching contributions are available for an IRA you might open yourself. This lack of free money is one reason it usually makes the most sense to prioritize saving money in a matched 401(k) account first before contributing to an IRA.

    Be sure to check out the merits of a regular IRA or a Roth IRA after you reach your 401(k) matching limit, however.