Get the Match From Your 401K
You wouldn’t say “no” to free money.
However, that’s what you’re doing when you don’t contribute enough to your 401k to get your employer’s matching contribution.
Here’s why: Let’s say you earn $50,000 a year and your employer matches 50 percent of your contribution up to 6% of your income. You contribute the maximum of $3,000 so your employer kicks in $1,500 more – for a total of $4,500.
The $1,500 from your employer is like free money!
Limits, exceptions and options
Maxing out your 401k contribution is smart planning. However, you may need to contribute more than 6% of your income in order to meet your retirement goals. Just keep in mind that the IRS limits the amount you can contribute. For 2012, the limit is $17,000.
Also be aware that:
- There’s a “catch-up” exception to the contribution limits. If you're 50 or older, you may be able to contribute more. In 2012, the additional contribution is $5,500.
- Your employer may require you to be in the plan for a certain period in order to qualify for the company match – this is often called “vesting”. Leave before then and you may not be able to take the match money.
- If you’ve hit your 401k contribution limit, but still have money to invest, consider a Roth or traditional IRA. The big difference between the two types of IRAs is tax status. A Roth IRA is paid for after paying taxes on income, while traditional IRA contributions are made pre-tax.
Take the next step
To find out more about saving for retirement, call us at 888-867-5175.
Federal income tax laws are complex and subject to change. The information in this brochure is based on current interpretations of the law and is not guaranteed. Neither the company nor its representatives give legal or tax advice. Please consult your attorney or tax advisor for answers to specific questions.
Keep in mind that all investing involves market risk, including the possible loss of principal. Neither Nationwide nor any of its representatives give legal or tax advice.