The 401(k) match: the closest thing to free money

A 401(k) match is your employer adding money to your retirement account when you contribute. A common formula is matching 50% of what you put in, up to 6% of your salary, though plans vary. Whatever the rule, it's an immediate return on your contribution that few investments can offer.

How to find your match

Ask HR for the plan's "summary plan description," or look in your benefits portal. You want three things: the match formula, the vesting schedule (when the employer money becomes fully yours), and whether the match is calculated per paycheck or at year end.

A worked example

Say you earn $60,000 and your employer matches 50% of contributions up to 6% of pay. Contributing 6% is $3,600 a year, and the match adds $1,800. That's a 50% return the moment it lands. Contributing 3% instead would forgo $900 of match.

What it costs you in take-home

Traditional 401(k) contributions come out before income tax, so a $100 contribution doesn't reduce your paycheck by $100. It reduces it by less, because you pay less tax. Our calculator doesn't model pre-tax deductions, so treat its take-home number as the figure before 401(k) contributions.

If you can't afford the full match

Start with whatever you can, then raise the percentage by 1% each time you get a raise. Many plans offer automatic annual increases. You'll adjust to the lower paycheck quickly.

General information, not investment advice.

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