Don’t Leave Money on the Table: A 401(k) Match Is Too Good to Ignore | American Funds

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MAY 9, 2017

Don’t Leave Money on the Table: A 401(k) Match Is Too Good to Ignore

Learn how company matches work and how they can help you make the most of your retirement plan contributions.

1/3 – Despite the fact that one-third of all 401(k) contributions come from employers, studies have shown that many employees aren't taking full advantage.

Would You Turn Down Free Money?

If your answer is no, check out your 401(k) plan and see what your employer might have to offer.

Many employers offer their employees “free money” in the form of a matching contribution to their retirement accounts.

How Matches Work

The most popular type of employer match is a “simple match,” where employee contributions are matched up to a fixed percent of an employee’s salary, according to a recent study by BrightScope and the Investment Company Institute (ICI).

For example, a company might match 50 cents on the dollar of employee contributions up to 6% of salary. That means if you earn $100,000 and contribute 6% (or $6,000) of your annual paycheck to your 401(k), your company match would be $3,000.

This “free money” could make a meaningful difference for your retirement nest egg.

“One of the easiest returns on investment available to you could be a company match. This could mean an immediate 25 or 50 cents for every dollar you contribute up to the matching maximum,” says Ken Burdick, senior product specialist at American Funds. “Even if it doesn’t seem like a lot now, the compounded value of those contributions over time could be significant.”

Making the Most of Your Match

Employees should consider contributing at least enough to their retirement accounts to be eligible for a match, said Sarah Holden, ICI’s senior director of retirement and investor research.

They might want to consider contributing even more, she added. Experts recommend that workers save 10% to 15% of their pre-tax income for retirement, including contributions from their employers.

The bottom line: Don't leave money on the table by foregoing your company match.

How Popular Are Matches? Very.

Approximately three-quarters of 401(k) plan sponsors contribute to their employees’ retirement accounts, with these contributions accounting for as much as one-third of the total contributions in the nation’s 401(k) plans, the BrightScope/ICI study shows.

In fact, employer contributions have consistently accounted for about one-third of 401(k) contributions for the last several years.

Source: “The BrightScope/ICI Defined Contribution Plan Profile: A Close Look at 401(k) Plans, 2014.” Dec. 20, 2016.

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