Why your 401(k) game may matter more than you think
A 401(k) match can make a big difference in your savings, and it’s important to take advantage.
These games are essentially free money, and the amount you get depends on what your employer offers and how much you contribute. Learn how the game works and how you can win.
How 401(k) works
Employers can offer a variety of similar plans. For example, your employer can match 100% of all contributions up to 4% of your annual income. If that’s the case and your income is $70,000, the employer will contribute $2,800 (as long as you contribute more). So while you might think you’re only putting in $2,800, the total contribution actually comes to $5,600.
Another employer can match 50% of all contributions up to 6% of your salary.
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Why you should prioritize matching your 401(k)
Finding your perfect 401(k) match each year can help you build your nest egg over time. While it’s important to develop an emergency savings fund that can cover your expenses for three to six months, financial advisors often advise that you prioritize investing at least in your retirement accounts to get the perfect game. Also, free money.
Everyone’s finances are different, which means the best strategy works for your goals, risk tolerance and time frame. For one person, it may make sense to contribute enough to a 401(k) to get a match, then fund their savings before putting more money into a retirement savings account. For some, it may make sense to max out their 401(k) contributions, get a match and invest the rest in a tax-advantaged account.
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What you don’t know about exposure
While the employer match will help your portfolio grow, there is a catch. Plans often have shipping schedules, which determine whether you own your employer’s argument. Some plans require you to work for three years before getting all your games. Some use a fixed system, where you get another employer’s employer after two years later and every game the following year, for example.
The federal government requires that the disclosure take place within six years, but that can mean waiting up to six years until the contributions actually belong to you. It’s a way for employers to retain employees, and it’s important to understand your retirement plan in case you need to take it before leaving the job.
Certain 401(k) plans offer immediate exposure.
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Don’t leave money on the table
Noticing unused subscriptions on a credit card statement for six months sounds like a mess, which is why some people carefully review their budgets to make sure those kinds of mistakes don’t happen.
Not contributing enough to a 401(k) to get the full match, likewise, leaves money on the table.
