If your company offers a 401(k) match, it’s essentially free money you shouldn’t overlook. Here’s how to make the most of it:

Aim for the Full Match: While saving enough to get the entire match is ideal, it’s understandable that everyone’s financial situation differs. Budget wisely to contribute as much as possible to capture the maximum employer contribution.

Understand Vesting: Employers use matching contributions to encourage employee retention through “vesting” schedules. These schedules dictate how long you need to work to fully own the matched funds. For instance, full ownership might require three years of employment, or you might earn a percentage each year until fully vested. If you’re considering a job change, review your plan’s vesting rules. Remember, your own contributions are always 100% yours.

Know Your Company’s Matching Schedule: The timing of employer matching contributions can be significant. Some companies match per paycheck, while others do it twice a year. If you front-load your contributions early in the year and your employer matches per pay period, you could miss out on later matching funds if you’re no longer contributing. Some companies offer a “true-up” to compensate for this if you max out early. Check your plan details.

Roth Contributions: Even if you contribute to a Roth 401(k), employer matches were traditionally pre-tax. However, SECURE Act 2.0 now allows for post-tax employer matches, although it’s the employer’s decision to offer this.

Highly Compensated Employees (HCEs): If you’re classified as a highly compensated employee (generally owning over 5% of the company or earning above a certain threshold and in the top 20% of earners), you might not be eligible for the full employer match. This classification is based on the previous year’s income. There’s also a maximum income ($345,000 in 2024) that employers can match, so higher earners might not receive a match on their entire salary.

Consider Saving Beyond the Match: Once you’re contributing enough to secure the full employer match, aim to save even more. A common recommendation is to save 15% of your pre-tax income for retirement, including the employer’s contribution. If your employer matches 6%, try to contribute 9% yourself to reach this goal.

No Employer Match? If your employer doesn’t offer a 401(k) match, still strive to save 15% of your pre-tax income. You’ll need to be more aggressive with your own contributions to reach your retirement goals without this extra boost. Explore strategies to increase your personal savings.

No 401(k) at All? If your employer doesn’t offer a 401(k), consider opening an Individual Retirement Account (IRA), which may provide different investment options. If you’re self-employed, explore tax-advantaged retirement plans designed for small businesses. Questions? We can help you find the right plan for you! 

see IRS 401K limits