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IRA Financial Group Blog

401(k) Match – What’s At Stake?

3 Minute Read
Key Points
  • 401(k) matching is like free money
  • Setting aside funds for your retirement is smart
  • Annual increases help you out

Are you missing out on your employer’s 401(k) match? That could be costing you – big time.

Corporations and companies that offer a 401(k) match will match your contributions up to a certain amount. If it’s a percentage of your salary (as opposed to a fixed amount,) the amount of money you miss out on could be increasing every year your get a raise or other salary increase. With many companies matching up to 3% to 6% of what your annual salary, that can add up to be a significant amount of cash.

Vesting & Investing

Some companies will vest their contributions to your 401(k) right away, while others will only do it slowly. But if you’re planning on being in the company for a long time, your money could be vested fully before you even realize it. And even if you leave the company before you’re fully vested, you’ll still have some money above and beyond what you’ve originally contributed. Either way, taking advantage of your company’s 401(k) match policy makes good financial sense.

What You Need To Know About the 401(k) Match

Taking advantage of the company matching program for your 401(k) at the company where you work should be quick and painless. Your HR department may have told you about it when you were hired. If they didn’t you can inquire and get the information that way. You want to be sure to:

  • Find out the amount you’re allowed to contribute
  • Find out what the matching 401(k) contribution will be from the company
  • If you’re really interested, see where your investments are being made, and where your money is going.

Dollars And Sense

Investing in your future is one of the most important things you can do for your financial health and well-being. Preparing for retirement, and having money put away in case of an emergency, are both important ways of managing your wealth. If you save 4% of your income, and your employer matches that amount, your savings for retirement or an emergency may not have made you rich, but it may have put you in a safer place.

Here is an example of how the 401(k) match works:

You earn $50,000 and your employer matches 50% of your contributions up to 5% of your salary. To receive the full match, you will need to contribute $5,000 annually. By doing so, you will have accumulated $7,500 by the end of the year. Of course that amount will be higher or lower based on how your investment choices perform.

What Should You do After You Receive the Full Employer 401(k) Match?

If you’re maxed out on savings potential from your employer’s plan, where else should you put your money? You can consider getting an IRA. Like many types of accounts, there are various options when it comes to IRAs. Below are some of the most popular:

 Traditional IRA – provides the upfront tax break associated with IRAs

Roth IRA – offers diversification because of the tax treatment – namely there is no upfront break, but retirement withdrawals are tax-free

Self-Directed IRA – allows the plan holder to fund traditional or alternative investments, including real estate, cryptocurrency, stocks, and more

Just because you’ve reached the employer match doesn’t mean your retirement savings have to end. In fact, if you are a super saver, you can try to max out your 401(k) after maxing out your IRA. Do the research, find a financial advisor who can help, and educate yourself on all of your options. There have never been so many choices and chances to get your retirement goals aligned with your other financial strategies.

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