A 401(k) match is a type of employer contribution to an employee’s 401(k) retirement savings plan. It works by having the employer match a portion of the contributions made by the employee to their 401(k) account, up to a certain limit or percentage of the employee’s salary.
For example, if an employer offers a 401(k) match of 50% up to 6% of an employee’s salary, it means that for every dollar the employee contributes to his 401(k) up to 6% of his salary, the employer will contribute an additional 50 cents. If the employee contributes 6% of his salary, he would receive the full match from the employer.
401(k) matches are a valuable benefit because they basically provide free money to employees to save for their retirement. They encourage employees to participate in their company’s 401(k) plan and save more for their future. The specific terms of a 401(k) match, such as the matched percentage and the cap, vary by employer.
Learn More: Are Retirement Savings Tax-Free? Here’s What We Discovered.
According to Fidelity, 1 in 5 employees, which represents approximately 20% of employees, are leaving at least part of their 401(k) plan on the table, are thousands of dollars that remain in the power of employers, which could be destined to employees, these funds could be of great help and benefit directly to workers.
Some of those who quit their parties possibly do so because they need to keep the electric service and food on their tables, it should be the first thing, but if you have extra money, there will be no better investment than your 401(k) plan, this is what you can do for the average worker.
What is the average value of the 401(k) match?
Companies that offer a 401(k) match have their own matching formula, which apparently is the most common, is a dollar-for-dollar match of approximately 3% of income and a match of $0.50 per dollar, with an additional 2% on income, so the employee can make a saving of 5% of his salary for retirement and his employer makes a contribution of the other 4%, which represents a total of 9% of the worker’s income.
At first glance, it does not seem to be a big deal, the average weekly income in the United States, in the first quarter of 2024, was $1,139, according to the information provided by the Bureau of Labor Statistics, which adds up to an annual income of $59,228, if we are based on 4% of that, we would end up with $2,369 as an employer contribution.
Possibly, that does not cover even the retirement expenses related to a month, but it is only a starting point, you are going to make the investment in that 401(k) contribution, probably for decades, and when you need to make the withdrawal it will be worth much more.
See Your Retirement Savings as They Grow
A match of $2,369 in which a 10-year investment was made, and you get an average annual rate of return of 10% would be worth about $6,145, claiming that a match would actually earn you $13,825 after 10 years because the 5%, or $2,961, that you invested to claim your 401(k) match would also increase during this time.
Even, that’s like a needle in a haystack, if the comparison is made with what happens if you apply for your 401(k) year by year, the following table will show you how your retirement savings could increase if you contributed $2,961 a year and made the request for the average 401(k) match of $2,369 annually
