4 Ways to Potentially Maximize Your 401(k) Company Match
The 401(k) company match is a powerful tool that may help you maximize your 401(k) retirement income – without contributing any additional money of your own. It’s basically free money for your future.
How much you receive depends on the terms of your 401(k) plan. Many employers match a percentage of employee contributions, up to a certain portion of the total salary. However, some match employee contributions up to a certain dollar amount.
Whatever your plan rules, make sure you aren’t leaving free money on the table. Keep reading for 4 ways to potentially maximize your 401(k) company match.
#1: Know Your Company Match Rules
Company matches vary from employer to employer. Make sure you know your plan rules and know how much you need to save in order to get the full match.
For example, your employer might match 3% of your pay, but you are required to contribute 6% of your salary in order to get the full match.
#2: Know the Required Waiting Period
Many 401(k) plans allow you to participate with your first paycheck. However, some employers require a waiting period before you qualify for the company match.
Whether it’s a three-month waiting period or an entire year, it’s up to you to know the rules so you can plan accordingly.
We recommend you start contributing to your 401(k) as soon as you are eligible, even if you have a waiting period to take advantage of the company match.
If you save the match amount each pay period, then when you are eligible, you’ll automatically get the benefits once it kicks in.
#3: Set Up Automatic Withholding
As soon as you are able to enroll in your employer’s 401(k) plan, make sure you set the amount so you qualify for the company match.
Even if it takes a few months for you to qualify for the company match, go ahead and do it. Not only will you be putting more money toward your retirement future, but your savings are pretax, which should help come tax time.
Remember, your 401(k) company match does not count against your 401(k) contribution limit for tax deduction purposes.
#4: Know Your 401(k) Plan’s Vesting Schedule
Vesting means ownership when referring to a retirement plan and represents how much employer matching funds you own each year.
It’s important to know your 401(k) plan’s vesting schedule because you may not own the money your employer contributed until you are fully vested.
Any money you personally contribute is always 100% vested.
If you are 100% vested, this means you own 100% of your 401(k) balance and your employer cannot take it back.
Should you change jobs before you are fully vested, depending on the vesting schedule, you will have to return part or all of the money your company matched.
Again, when you become fully vested depends on your 401(k) plan requirements.
Some plans require you to stay employed for a specific amount of time before the money the employer contributed to your match is yours. This is known as cliff vesting.
Others let you keep employer contributions as soon as they are made.
Many companies have graded vesting. For example, 20% might be vested after your first year working, 40% vested the second year, etc., until you are fully vested.
No matter what, once you become fully vested, the money is yours to keep.
Your vesting schedule should be clearly spelled out in your plan agreement. If you don’t see it in your info packet, make sure to ask your plan representative or HR department. Contact your certified financial planner, Paul Kalra, at Signature America Wealth Management, Lake Forest, California, to discuss your potential 401(k) plan.
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