When you are trying to maximize your 401k investment, it is recommended to know the match that your company is providing on your 401k plan. This will help give you a good idea about how much your investment is multiplying on a yearly basis.
However, there are many things that you would need to know about the match being made by your employer.
Two Important Facts about 401K Match
The two most vital points about 401k match are as follows:
- Dollar for dollar match: When you contribute a dollar to your 401k investment, your company also puts in a dollar. However, as soon as you reach the 5% mark of your contribution, your company stops paying into your 401k for that particular calendar year. They would again begin contributing according to your contribution in the next calendar year. So, you will basically need to plan your contributions accordingly to keep them less than 5%.
- 50% match up to the first 6%: Apart from the above plan, your employer can also contribute 50 cents for every dollar that you pay into your 401k. Your company will only pay till 6% of your contribution in one calendar year. Once the 6% mark is reached, your employer will cease to make any more payments in the 401k account. They would again start paying in the next calendar year.
Tips to Get the Maximum Value from Your 401K Match
The only reason potential retirees take the 401ks offered by their employers is their hassle free nature and matching contributions. There are many ways, which ensure that you get the maximum out of your 401k match. Some tips that should be helpful are as follows:
- Understand the matching program: It is crucial for you to understand the matching program followed by your employer. The best way to know the details of your 401k account would be through the HR department. Get the details about the employer contribution being made every year. If there is any default or difficulty in understanding, then ask the HR people about it. Once you have a clear idea about the matching program followed by your employer, it would be easier for you to plan your contributions.
- Sign up early: It is a golden rule of retirement investment that the earlier you sign up, the more you are able to save. Therefore, it is better to sign up for the 401k investment plan offered by your employer the moment you join the company. This way you will be able to get the maximum out of the 401k match. Always remember that the earlier you start the matching program for your 401k, the more your company will contribute before you reach the benchmark.
- Don’t stop your contributions: There are certain people who stop their contributions to the 401k accounts as they think that it is a burden to carry on. When you stop the contributions to the 401k plan, you are actually turning down free money, which is the money contributed by your employer. All you are doing to get your employer to contribute to the 401k plan is making your own contributions. Therefore, it is unquestionably a bad idea to stop your contributions to the 401k investment plan.
- Calculate the formula: It is understandable that not everyone is an ace mathematician. However, it is necessary for you to understand the formula of the 401k match to look for ways to maximize it. This will guide you on how to manage your contributions so that you do not hit your limit before the calendar year ends. If you hit your investment mark before the calendar year ends, your employer will stop contributing in your 401k, which will mean a loss of free money.
Knowing how to maximize your 401k match will ensure the best out of your retirement investment. Once you are aware of the different tips and tricks of the 401k match, it is easier for you to plan your 401k investment.