How to Maximize Your 401(k) Match

No matter how old you are, saving for retirement is one of those things that should be started as soon as possible in order to maximize the various savings options that are available to you. Whether you decide to do it on your own, enrolling in company retirement plans, or a combination of the two, making sure you take advantage of all the different resources at your disposal is the best way to save the most for the post-work years.

One of the most common retirement vehicles is the 401(k) plan, used by nearly every type of employer in industries across the board. If you’ve already enrolled in a 401(k), chances are you already understand how valuable they can be. But even if you’ve been a part of one for years, you still may not be making the most of it. Here’s how to do just that.

1. Ask About the Default Contribution:

When you sign on to a company that matches 401(K) savings, you most likely were automatically put on to a default contribution that is the minimum amount they match. In some cases, for instance, you may only be signed up for a 3% match when the company can offer up to a 6% match.

Unless you either opt out completely or sign up manually to be upgraded to a higher number, you’ll most likely stay at the minimum match indefinitely. It’s worth a second glance at your retirement options to see if you’re making the most of your time.

2. Play By Company Rules:

Every company handles their 401(k) plans differently. For some, you must save 6% of your take-home pay to get a 3% match, or they may up to 50 cents for every dollar you contribute up to a certain point, where it then kicks in a different amount. Depending on where you work, your 401(k) contributions can fluctuate wildly.

Make sure that you’re staying abreast of the rules so that you don’t over-contribute to a plan when you could be saving that money elsewhere. Know the terms of your 401(k) and schedule your contributions accordingly.

3. Set Up Automatic Scheduling:

Since nearly every 401(k) schedule is set up to match a percentage of your salary rather than a specific dollar amount, set up automatic scheduling from day one so that your contributions grow with your salary. You should qualify for employer contributions the minute you set up your tax rate and enroll in the plan, so take the extra step by setting up an automatic schedule as well. In the event that you contribute more than the amount that your employer will contribute, you might even qualify for an extra tax break, so don’t worry about overdoing it.

4. Consider the 401(k) in the Job Search:

As mentioned before, every company handles their 401(k) contributions differently, and what you get with one company does not necessarily dictate what you’ll get with the next company, even if it’s within the same industry. If you’re in the middle of the job search, read the fine print on the 401(k) matching contributions to see how competitive the terms are. Your retirement contributions can and should be considered as a key part of your overall compensation.

For reference’s sake, the higher 401(k) matches are typically given by companies that employ over 100 people, but it could also be impacted by the different industry that you work in as well. If you’re in a skill that is transferable between industries, such as marketing, accounting, etc, then consider alternative areas of expertise to compare pay packages.

5. Pay Attention to the Time Stamps:

Though many companies allow you to be eligible for retirement contributions from day one, others do not and may make you wait a few months or even years before you’re eligible. While this may not necessarily be a deal breaker, you’ll need to either set up an alternative means of retirement for the time being or be ready to pay into the fund before you’re eligible to take advantage of their policy.

Moreover, be sure to read the exact terms of your retirement vesting plan as well. You won’t be able to keep what the employer has matched until possibly several years into the job; 45% of companies force you to stay for over five years before that money is technically yours. However, some employers will allow you to keep a certian percentage of your retirement on a graduated scale if you leave before the time, so if you’re considering a move, take a look at the vesting schedule before you pull the plug.

Edward Schinik is the CFO and COO of Yorkville Advisors.


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