top of page

Caden Heyen

The Slim Report

Search

401(k) Match [Post 7]

Writer: Caden Heyen
Caden Heyen
Feb 1, 2023
2 min read

Who Should Read This

Anyone actively contributing to a 401(k) that likes “free” money.


Why You Should Care

If your employer matches a percentage of your 401(k) contributions and you are not contributing enough to get the full match… you are walking away from a cash offering.


What is a 401(k) and 401(k) Match?

A 401(k) is an employer sponsored retirement savings account.


The 401(k) match (which is optional for your employer to offer) is when you contribute to the account and your employer also contributions a certain % for your benefit.


Example

Let’s say your employer matches ½ of the amount you contribute to your 401(k) up to a maximum of 5% of your compensation.


More simply stated, if you are making $50,000… you will achieve the full match by contributing a minimum of $2,500 ($50,000 x 5%) and your employer will contribute their ½ match of $1,250 ($2,500 x 1/2). Totaling $3,750 for the year.

Figure 1. Example 401(k) Match Calculation



In 2023, the IRS limits 401(k) contributions of individuals (from employer and employee combined) to $22,500. Meaning our example falls well within the allowed limit.


Bare Minimum

Only investing enough to achieve the full match is by no means the most one person should hope to save in their 401(k). This is just the bare minimum to collect the entire “free” compensation offer.


Things to Know

  • Traditional 401(k) Contributions are Tax Deferred – Meaning you will not pay taxes until later when you withdraw the funds after age 59 ½. You are also able to take a tax deduction for the amount you personally contribute.

  • Vesting Schedule – If you decide to leave your current employer, the funds they contributed to your 401(k) may not be fully owned by you. If a vesting schedule is present, they are typically entitled to keep a % until you have reached so many years of service with them. Keep this in mind if you plan to seek new employment.

  • Roth 401(k) – If you are contributing to a Roth 401(k), the employer match will be placed into a Traditional 401(k) separately. The Roth account will be taxed up front while the Traditional account will be taxed at the time of withdrawal.

  • The Employer Match Matters – An extra thousand dollars or two in the account over the course of a career can lead to hundreds of thousands of dollars in growth. Don’t believe it? Use the calculator link at the bottom of the page to make a projection of your own.

Summary

If it is offered to you, don’t miss out on your 401(k) match. It is an easy way to get more out of your investment accounts.





 
 
bottom of page