Clients and friends are always asking me financial questions. You might have similar questions so I have decided to share them with you. I will try and post at least 1 per week.
What is the benefit of an employer match?
Answer:
The more you save for retirement, the better your chances are of retiring comfortably. One way to help accomplish this is by taking advantage of an employer match. Many employers offer matching contributions as part of their employer-sponsored retirement plan benefit package.
With an employer match, your employer will match all or part of your contributions to an employer-sponsored retirement plan, up to a certain amount. At some point you will become vested in (or entitled to) your employer’s contributions and related earnings through your years of service with the company (plan details will vary, depending on the employer).
The following hypothetical example illustrates how an employer match might work:
Assume you earn $50,000 per year and work for an employer that has an employer matching 401(k) plan.
The match is 50 cents on the dollar, up to 6% of your salary.
Each year, you contribute 6% of your salary, or $3,000, to the plan.
You then receive a matching contribution of $1,500 from your employer (50 cents for every dollar you contribute). By utilizing the employee match, your combined yearly and matching contributions to your 401(k) plan will total $4,500.
When contributing to a retirement plan that has an employer match, you should try to contribute at least as much as the limit that your employer will match (in the above example, that’s 6% of your salary). By capturing the full benefit of your employer’s match, you’ll be surprised at how much more quickly your retirement plan balance can grow. Keep in mind that if you were automatically enrolled in your employer’s retirement plan, your contribution rate may have been chosen for you (typically 3%) and may not be enough to receive the full employer match. As a result, you’ll need to contact your retirement plan administrator in order to increase your contribution rate to an amount sufficient to capture the full match.
When it comes to retirement plan contributions, an employer match should basically be viewed as “free money” from your employer. If you don’t take full advantage of this retirement plan benefit, you could miss out on a substantial amount of retirement savings.
As always, you can consult with me to discuss your current situation
If you have a question, feel free to send it to Jared@artoffinancialplanning.com
Thanks for stopping by and I hope you achieve financial success!
