One of the best available options for retirement is an employer 401(k) plan. These plans allow you to save money for your future retirement with many additional benefits. The largest benefit, by far, is your employer match.
What is an employer 401(k) match?
Your employer match is the biggest advantage to this type of retirement plan. It allows you to accrue retirement savings at a faster rate than you could achieve on your own. First let’s discuss what exactly a 401(k) employer match is.
If you contribute a specific percentage of your income into your employer’s 401(k) plan, your employer will match that contribution. Typically, employer contribution is 3 percent of 6 percent of your income. Many employer match programs are capped at 6 percent. This money is given to you at no extra cost.
If you are putting money towards a 401(k) and not investing a match program with your employer, you may be missing out. In many cases, the sooner you participate in a matching plan, the better.
To maximize the benefits for a 401(k) match, here are a few things to consider:
When determining if a 401(k) employer match program is right for you, the first thing you need to consider is your vesting schedule. Your vesting schedule is the amount of time that you need to be with your company before the money they’ve contributed to your savings plan becomes yours. Every employer match plan is different, and vesting schedules will vary.
The next thing to consider is your company’s matching rate. If your employer agrees to match your contribution at 50 percent, that means if you contribute 6 percent of your income, they will match 3 percent annually. Another factor to consider is your company’s maximum annual match. This is the highest percentage that your company will contribute to your savings account each year. To get the most out of employer’s match program, you should try to invest the maximum amount.
Here is a common 401(k) scenario:
- Henry’s income is $50,000 and his company will match 50 percent of his contributions, up to 6 percent
- Henry decides to invest 6 percent ($3,000) of his income annually
- His employer will contribute 3 percent ($1,500) annually
- Henry invests a total of $4,500 into his 401(k) plan each year
An employer 401(k) plan is an amazing retirement planning tool. These plans offer numerous benefits which will help you ready yourself for the future. By utilizing your employer’s match to its greatest potential you can be sure you are getting the most your plan has to offer for years to come.
