Employer Matching: Understanding Your 401k
February 11, 2020
Retirement is an exciting time for you to have a second wind in life! You can live out your dreams and focus on other passions in your life, too. As you ready for retirement, it’s a good idea to start saving now but what if there were options to get help with your savings endeavors?
Depending on your employer, you may be eligible to contribute to a 401k that has matching benefits. Today, we’re discussing matching programs and how participating in a match supplied by your employer could help you reach your savings goals sooner or, even, surpass your desired number.
What is a 401k employer match?
A 401k match is a system wherein your employer matches a certain amount of your contributions towards your 401k retirement investment account. Your employer may decide to match your contributions based on:
- A percentage of your total salary
- A determined dollar amount
- How much you contribute annually
Many consider the amount matched by your employer as free money because, in a way, it is. Your employer is matching your contributions simply as a perk of employment with them.
Recognizing how great a perk this is for their employees, some employers integrate a vesting system to ensure their employees don’t just take their matched contributions and leave their job. A vesting system or schedule does not mean your contributions from your paycheck are withheld. Any contribution you make to your 401k belongs to you. However, your employer’s matched funds belong to you on a schedule determined by your employer. A common vesting practice may be increasing the percentage of the match that employees are guaranteed with every year they work with their company.
Let’s talk limits
With any retirement investment program, there are limits to contributions (these numbers are subject to change). With a 401k, the contribution limits are $19,500 per year unless you are an employee over 50. In this case, you might consider adjusting your contributions based on “catch-up contribution” limits.
In keeping with the “free money” concept, some suggest contributing to your 401k employer match limit to capitalize on your employer’s match system. On the other end of the coin, considering how large a sum of saving the max contribution would be, some suggest prioritizing other savings goals like an emergency fund or paying off loans, or insurance before prioritizing maximizing your 401k limit.
Whatever you decide to do with respect to your retirement investment portfolio is a deeply personal choice. It may be helpful to involve an investment professional in your planning to help you get a well-rounded perspective about how to create a portfolio that mirrors your goals and plans for retirement and beyond.
Maybe you’re hoping to plan for retirement in more non-traditional ways? Or, perhaps, you’ve just begun our retirement journey and need to take more formative steps and need to start your planning from the beginning. However you make these plans, it’s important to put yourself first!
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Don’t let go of your savings goals just yet!
You can get a fresh start to your money-saving goals at any point in your year. Take a look at our 5 tips to set financial goals!
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