If it’s offered to you, always take advantage of an employer 401(k) match. You are entitled to this extra form of compensation.
It’s not very often in life when someone hands you money for nothing, but a 401(k) match is one of them. When you put money from your paycheck into your 401(k) account, many employers will also contribute some money to your account. This is called a “match.”
Your employer’s match is a percentage of what you put in your 401(k). That means the more money you contribute each pay period, the more of a match you get. Matching formulas vary from company to company. Many employers offer a 50% match, which means that for every dollar you put in, the employer will put in 50 cents, typically up to 6% of your pay.
Remember that your employer is not required to match your 401(k) contributions. But most employers do match some portion of their employees’ contributions. Your employer may require you to work for a minimum period of time before you can keep the matching contributions as your own. This is called “vesting.”
* This illustration is a hypothetical compounding example that assumes biweekly deferrals (for 30 years) at a 7% annual effective rate of return. It illustrates the principle of time and compounding. It is not intended to predict or project the investment results of any specific investment. Investment returns are not guaranteed and will vary depending on investments and market experience. If fees, taxes, and expenses were reflected, the hypothetical returns would be less.