Believe it or not, certain employers are willing to provide their employees with additional income in the form of a 401k employer match. It’s like getting additional free money from your employer because they’re willing to match a percentage of the amount you’ve put into your 401k account throughout the year.
Also Read: What is a 401k?
For some people, they prefer not to think about this as free money. Instead they like to look at it as a reward for performing a job well done. More than likely, you worked very hard for your employer and you deserve to get this additional income put aside for your retirement.
To help you better understand a 401k match, we will share information about the specifics and details with you below. So keep reading to discover the truth.
Getting a Salary Percentage 401k Match from Your Employer
This may seem self-explanatory but there are specific details that you should know to better understand the employer salary percentage 401k match. Specifically, we’d like to tell you how this is set up and the best way to take advantage of this exciting opportunity.
Generally speaking, when an employer provides a 401k match, more common than anything else, they will take a percentage of your salary and match it as a contribution to your personal 401k account and plan. More often than not, the typical average for the percentage of salary is roughly around 6% of your total salary for the year.
On the other hand, some employers choose to only contribute based on the employee’s contribution. They will give you a certain percentage based upon your total contribution amount. If your employer happens to be very generous, they will often make a 100% contribution. But in many cases, most employees will receive a 50% contribution or less based on the amount that you put into your 401(k) plan during the year.
As an example let’s say you’ve contributed $3000 to your 401k plan for the current tax year. If your employer makes a 100% match, they will also contribute $3000. If they only make a 50% match, or $.50 on the dollar, they will only contribute an additional $1500 to your account. So depending on your employer and the way they perform their match, you’ll either have $6000 or $4500 in your account at the end of the year.
401k Match & Vesting
In most situations, an employee isn’t going to gain access to the company 401k plan unless they’ve worked for them for a certain amount of time. Every company is going to be different, so every company will set up their vesting plan according to their wishes.
But in most cases, if you’ve only worked for a short while, you only receive a 25% match. But then the full plan kicks in after you’ve worked for the company for five years and then you become fully vested. At this stage, your employer may give you a 100% match. Again it all depends on their plan and how they had it set up.
Overall, understanding an employer 401k match is very easy to figure out. We shared this information with you in plain English above, so use it to gain better knowledge about this topic. On the contrary, I’m more of a self directed IRA person, mostly because I’ve always run my own business. This allows me to invest in a 401k plan with gold, and other unique investing options. Unfortunately, as a self employed businessman, the 401k match doesn’t pertain to me, but it’s important to spell it out for you all as I assume most readers are employed. Please leave any comments or questions in the space below.