What is a matching contribution?
- What are defined contribution plans?
- How do defined contribution plans work?
- How does the money get invested?
- What tax benefits do 401(k)s offer?
- Do I have to contribute to my plan?
- Why is a 401(k) such a good deal?
- When do I pay tax on a 401(k)?
- How is a Roth 401(k) different?
- What is a matching contribution?
- How does vesting work exactly?
- How much should I contribute to my plan?
- What if I can't invest the maximum right now?
- What if I need the money before I retire?
- What if I leave my job?
Lots of defined contribution plans come with a bonus: a matching contribution from your company. The match can often be 50 cents to a dollar for every dollar you contribute, up to a set maximum - perhaps 3% to 6% of your salary, or in some cases a dollar limit. The match is free money! And it effectively increases your income without increasing your tax bill, since you pay no taxes on matching contributions until you withdraw them in retirement.
The employer's match money typically "vests" over three or four years, meaning you have to keep working for the company for that amount of time before all the matching funds are yours to keep.
