You should take advantage of a 401(k) employer match if provided.
You have a 401k plan as part of your employment benefits package.
This will help you plan and save for retirement.
Your plan has an employer match.
You should be even more excited.
This will help you plan and save even more for retirement.
According to a recent Investopedia article titled “How 401(k) Matching Works,” there are a few ways employer matches could work.
For example, if your employer matches 100 percent up to 4 percent of your salary when you contribute 4 percent, you will have 8 percent of your salary placed into the account.
Another matching method is for an employer to contribute up to a certain amount for all employees.
This match is not dependent upon your salary.
It is a flat rate match.
Taking advantage of a 401(k) match is essentially "bonus" money.
And who does not like a bonus?
Specific terms of 401(k) plans will vary.
All plans must comply with withdrawal regulations of the Employee Retirement Income Security Act (ERISA) and certain required contribution limits.
How much is matched and other details are left up to the discretion of the company.
Some companies will give a 100 percent match on your contributions up to a limit.
In essence, you will double your savings by maximizing the match.
Other companies may only match a percentage of your contributions up to a certain amount.
If you have a system where the employer only matches 50 percent up to 5 percent of your income, its contribution if you maxed out your match would be 2.5 percent of your total income.
You would likely need to contribute more to your retirement account to make up the difference.
There are IRS limits to deferrals.
What are they?
In 2019, limit to contributions to 401(k) accounts held by a single employee were 100 percent of compensation or $56,000.
The lower number of these two is the limit.
Elective salary deferrals by an employee are capped at $19,000.
Does the employer match count against your deferral limit?
It does not.
Is there any wiggle room for employees nearing retirement?
If you are over age 50, you can make additional "catch up" contributions.
In 2019, the catch-up limit is $6,000.
Another important aspect to check with your employer 401(k) plan is vesting.
Essentially, you need to know the degree of ownership you have over the employer matched funds.
If you worked less than a certain amount of time, you may forfeit all or part of the employer contributions should you leave.
Are your contributions at risk?
Your contributions are your contributions and cannot be forfeited.
Talk with your HR department if you have questions.
If you have an employer match, maximize it.
This is free money for retirement you should not pass up.
Did I mention that this is "free" money?
Regardless whether you have a 401(k), start saving for retirement now.
You retired self will thank you later.
Reference: Investopedia (February 4, 2019) “How 401(k) Matching Works”