The concept of employer matching is simple: your employer adds money to your 401(k) account, generally based on a portion of your own contributions. So basically: it’s free money!*
As an example, let’s say your employer offers a full match on up to 3% of your salary. Assuming your salary is $100,000 and you contribute 3% of that each month, you’ll have contributed a total of $3,000 towards your 401(k) for the year.
Because your employer matches your 3% contribution, they will contribute an additional $3,000 to your account! At the end of the year, your 401(k) account will have $6,000. You’ve doubled your money just by contributing!
If your employer offers a match and you aren’t contributing enough to take full advantage of the match, you’re essentially turning down free money. Keep in mind that matching isn’t required, and many small businesses aren’t able to offer a match. So, if you’re lucky enough to have this additional benefit, Guideline highly recommends taking full advantage.
Does my employer offer a match?
Matching varies from plan to plan; when you enroll with Guideline, you’ll be able to see whether or not your employer offers a match.
What if my employer doesn’t offer a match?
Even if your employer doesn’t offer a match, you should still take advantage of your 401(k)’s other great benefits, like:
- Reducing your income taxes for the year
- Tax-free growth (you won’t pay taxes until you start taking 401(k) distributions in retirement)
- Ability to transfer funds between employers if you change jobs
- Automatic deduction from your paycheck (deposits require no effort on your part)
- Saver's Credit on income taxes for qualified participants
No extra effort is required on your part! We’ll deduct from your paycheck and contribute the funds on your behalf automatically.
Check out our article "Profit Sharing for Employees" to learn more about another type of contribution your employer can make to your 401(k).
*Taxes on matches must be paid upon distribution