Getting the Most From Your Employer 401(k) Match

Coworkers discuss their 401(k) program at work during an HR meeting.
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Getting the most from your 401(k) plan is one of the best things you can do when planning your retirement. That's because your employer may match the money you put into your account. If you work at a place that offers a 401(k) match benefit, when you put money from your paycheck into your 401(k), your employer puts money into the account, too.

If your company offers a match, you may have gotten a notice about it when you started your job. You can ask the 401(k) plan manager at work whether a 401(k) match is offered if you haven't already heard about it. Companies want employees to contribute to their 401(k), so they match the funds as a way to spur on workers to save for their futures.

Think of matching funds as free money you receive from your job after you make pre-tax contributions to your 401(k) plan from your paycheck. If you fail to put money into your 401(k), you give up the chance to receive your employer's matching amount.

Stretching the Match

Some employers offer a 100% matching benefit, while others don't match what the employee puts into a 401(k) at all. Many offer a 50% match, which is better than none at all.

Some plans may offer a lower percentage match on a higher percentage of the employee's pay. For example, a company might match 50% of the first 8% of your pay rather than matching 100% on the first 4% of your pay. This is done so employees will put more in their accounts. This strategy is called "stretching the match."

Vanguard's Center for Investor Research reports that stretching the match does not lead to higher contribution rates or greater employee participation. Instead, employees are more likely to add money to a plan if the employer matched 100% of the contribution.

You might have to work for your employer for a certain period of time before the company will begin matching the amount you put in. Some companies make you wait a while—perhaps three or six months or a year—before you can put money into your 401(k) plan.

Some Match Examples

One common amount that employees decide to put into a 401(k) matching program is 6%. When you commit 6% of your pre-tax annual income to your plan, your employer will put money into your account. Here is an example of how that might work:

  • 50% match up to the first 6%: Your employer will place 50 cents into your 401(k) plan for every dollar you put in, up to 6% of your gross salary for that year. As an example, if you earn $50,000 a year and put at least 6% of your paycheck into your plan, you'll receive a matching amount from your employer of $1,500 for that year. That's because 6% of $50,000 is $3,000, and your employer will put in half that amount, which is $1,500. When you add that amount to what you put in, you'll have a total of $4,500 put into your 401(k) for the year.

Here is an example in which the employer is more helpful in terms of the amount of its match but a little less so in the portion of your salary it's willing to match:

  • Dollar-for-dollar match up to 5%: Your company might include a dollar for every dollar you put in your 401(k) plan until you reach a total of 5% of your before-tax pay for the year. If you earn $50,000, and you add your 5% to the plan, that's $2,500 you've put in. Then, your employer will match 100%—also $2,500. You'll have a total of $5,000 for the year.

Contribution Dollar Limits

In 2021, the most you can add to your 401(k) plan is $19,500. If you are age 50 or older by the end of the year, your individual limit goes up by $6,500, because you can make a catch-up contribution in that amount. This means your individual limit goes up to $26,000.

The amount of money added to a 401(k) account by you and your employer combined in 2021 can not exceed the lesser of: The total amount you are paid in salary and bonus, and $58,000 if you are under 50 years of age or $64,500 if you are 50 or older.

Timing Payments for the Most Money

Some employers will pay their match no matter how many paychecks it takes for you to reach your allowed amount for the year. But many companies will make a contribution only during the pay periods when 401(k) money is taken from your paycheck. You can avoid leaving employer money on the table by putting in smaller amounts each pay period. That way, your employer will put money into your account in every period.

Let's say you're paid twice a month, and your employer will only add money into your 401(k) when you do. If you reach your $19,500 limit at the end of November, you've missed out on two chances for your employer to make its match. In this case, you'd be earning much more than $50,000 a year, but this issue could apply no matter how much you earn if you put too much money into your 401(k) too soon.

Your plan manager can help you manage your 401(k) account to make the most of your employer match. You can also use an online calculator to figure out how much you should put in from each paycheck.

Vesting Schedule

The money you add to your 401(k) plan is yours to keep, no matter when you leave your job. However, the amount of money put in by your employer is likely going to be subject to a vesting schedule.

If you're close to becoming fully vested in your 401(k), you might want to hold off on that job search for a few more months. You stand to gain quite a bit more in your 401(k) by waiting until you are fully vested before you leave.

With vesting, you'll have to work for the company for a certain period of time before you can take your employer's funding with you when you leave your job. When you have full vesting, that means that all the money your employer put into your 401(k) is yours to keep. This is the case even if you leave your job before you retire.

The Balance does not provide tax, investment, or financial services or advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal.

Frequently Asked Questions (FAQs)

What is a good 401(k) match?

According to T. Rowe Price's 2021 benchmark report, the most popular match offered by employers is 50% up to 5% of the employee's pay. Anything better than this would be an above-average matching plan.

When does the year end for a 401(k) match?

In terms of IRS contribution limits, the year resets on January 1. Any contributions and matches made during the year (up until Dec. 31) count toward your total contribution limit for the year. Your employer might choose to deposit its match each time you withhold your contribution from your paycheck, or it may deposit it at less frequent intervals, say, quarterly or yearly.