An employer match is a contribution that an employer makes to an employee's retirement plan (typically a 401(k)) based on the employee's own contributions. Common matching formulas include dollar-for-dollar up to a percentage of salary, or 50 cents per dollar up to a percentage. The employer match is essentially free money and is considered one of the best guaranteed returns available in personal finance.
Employer Match
Definition
An employer match is a contribution that an employer makes to an employee's retirement plan (typically a 401(k)) based on the employee's own contributions. Common matching formulas include dollar-for-dollar up to a percentage of salary, or 50 cents per dollar up to a percentage. The employer match is essentially free money and is considered one of the best guaranteed returns available in personal finance.
Example
If your employer matches 100% of contributions up to 4% of your $75,000 salary, contributing at least 4% ($3,000) earns you an additional $3,000 from your employer — an immediate 100% return on that money.
Key Points
- 1Free money from your employer for retirement
- 2Common formulas: 100% up to 3-6%, or 50% up to 6%
- 3Subject to vesting schedules
- 4Not contributing enough to get the full match is leaving money on the table
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