Matching Contributions
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Matching Contributions From Your Employer Can Help Build Your Retirement Account

Would you ever turn down free money? Many employers offer free money just for participating in their 401(k) plan by matching a portion of your contributions.

Let’s say you earn $50,000 a year and your employer matches 50% of your contribution up to 6% of your income. If you contribute 6% of your salary ($3,000), your employer will kick in $1,500 more. That $1,500 is like free money toward your retirement.

In addition to getting the company match, make sure you understand these components of your retirement plan:

Vesting

Your employer may require you to be in the plan for a certain amount of time to receive 100% of the company match. This is known as vesting. If you leave the company before you are fully vested, you may not receive the entire company match. Keep in mind that withdrawals are taxed as ordinary income and, if taken prior to 59½, they’re subject to a 10% penalty.

Maxing out

You may choose to contribute the maximum amount to your 401(k) in order to reach your retirement goals. Just keep in mind that the IRS limits the amount you can contribute. Current contribution limits are available through the IRS website.

Catching up

If you're 50 or older, you can make additional contributions to your company retirement plan. This is often referred to as “catch-up contributions.” Current catch-up contribution limits are available through the IRS website.

Passing the limit

If you’ve hit your 401(k) contribution limit and would like to save more for retirement, you can invest in an individual retirement account. Choose from a Roth IRA (tax-deferred) or traditional IRA (pre-tax).

What if your company does not offer match?

You can build your own retirement assets even if your employer doesn’t match your contributions. Consider contributing to your plan, and keep an eye out for other investment opportunities. You may also think about opening an IRA, building equity in a home or asking your employer to start a matching program.

If you change jobs over the course of your career, be sure to ask for details about your new employer’s retirement plan, including whether they match retirement plan contributions. If they don’t, consider negotiating a higher salary to make up for the loss.