Match Annual 2022

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If you have a 401(k), employer matching contributions provide a force multiplier for your retirement planning. Follow these tips to maximize your employer 401(k) match: 1. Start Making 401(k) Contributions Immediately

If you choose to save money in a Roth 401(k), matching contributions must be allocated to a separate traditional 401(k) account. This is because IRS rules require you to pay regular income tax on employer contributions when they are withdrawn—and Roth 401(k) withdrawals aren’t taxed in all but a few cases. With a dollar-for-dollar 401(k) match, an employer’s contribution equals 100% of an employee’s contribution, and the employer’s total contribution is capped as a percentage of the employee’s salary. Taking into account the power of compounding and a 6% annual rate of return, contributing enough to receive the full employer match could possibly be the difference between retiring at 60 versus 65,” said Young. Considering that surveys suggest many Americans don’t have enough money saved for retirement, meeting or exceeding the amount needed to gain your employer’s full 401(k) matching contribution should be a key plank in your retirement savings strategy.

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According to Vanguard, 40% of 401(k) participants were in plans with immediate vesting of employer matching contributions. Smaller plans, meaning plans with fewer participants, used longer vesting schedules, with employees only becoming fully vested after five or six years.

Some 401(k) plans include a vesting schedule for employer contributions. With vesting, you must wait for a period of time before taking ownership of the 401(k) contributions made by your employer. When you’re contributing funds to your 401(k) account month after month, there will be times when the market flags and you see the value of your investments steadily decline. You may face the urge to withdraw money from the market during downturns, it’s essential that you resist the temptation. We commonly see employers offer a 3%, dollar-for-dollar match,” said Taylor. “They match 100% of your contributions up to 3% of your salary.” According to Jean Young, a senior research associate with Vanguard Investment Strategy Group, partial matching is the most commonly used matching formula in Vanguard 401(k) plans.

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Employers use vesting to incentivize employees to remain at the company. When you complete the schedule, you are said to be “fully vested.” What Is a Partial 401(k) Match? Matching contributions aren’t required by law, and not all employers offer them as part of their 401(k) plans. But according to Katie Taylor, vice president of thought leadership at Fidelity Investments, a 401(k) match can be a core employee benefit that helps an organization retain talent and build strong teams.

If you’re intimidated by the investment options, take advantage of the plan’s target-date funds. “The vast majority of employers have their default investments set up as a target-date fund, which is tied to your age and retirement year,” said Taylor. “You can put your money in there, and it’s a sort of do-it-for-me option where it’s allocated across equities appropriate for your age.” 2. Always Contribute Enough to Get the Full Match With a partial 401(k) match, an employer’s contribution is a fraction of an employee’s contribution, and the employer’s total contribution is capped as a percentage of the employee’s salary.Depending on the terms of the 401(k) plan, an employer may choose to match your contributions dollar-for-dollar or offer a partial match. Some employers may also make non-matching 401(k) contributions. Like other 401(k) matching arrangements, a non-matching contribution is capped at a percentage of an employees’ salary. According to Vanguard, 10% of its plan participants offer only non-matching contributions.