How to Maximize Your 401K Employer Match (2024)

FAQs

How to Maximize Your 401K Employer Match? ›

Deciding where to invest money beyond the amount required to meet your company's match primarily comes down to taxes and fees. If the fees in your employer-sponsored plan aren't high and you're offered a variety of investment options, it may be worthwhile to max out your contribution.

Deciding where to invest money beyond the amount required to meet your company's match primarily comes down to taxes and fees. If the fees in your employer-sponsored plan aren't high and you're offered a variety of investment options, it may be worthwhile to max out your contribution.

A study by Vanguard reported that the average employer match was 4.5% in 2020, with the median at 3% of salary. In 2023, if you're getting at least 4% to 6% in 401k employer matching, it's considered a “good” 401k match. Anything above 6% would be considered “great”.

Single-tier formula: The employer matches the same amount for each dollar that you contribute, up to a certain percentage of your income. Example A: Your employer matches 50% of the first 6% of your contributions. In this case, you need to contribute at least 6% per-pay-period to earn your full match.

Make sure you understand how your employer's match works. If they aren't one of those who sidestep the problem, you need to be strategic in how you set up your contributions. Do this by dividing your contributions equally between pay periods across the entire year.

If you earn $60,000, the maximum amount your employer would contribute each year is $1,800. To maximize this benefit, you must also contribute $1,800. If you contribute more than 3% of your salary, the additional contributions are unmatched.

Elective deferrals up to 100% of compensation (“earned income” in the case of a self-employed individual) up to the annual contribution limit: $23,000 in 2024 ($22,500 in 2023; $20,500 in 2022; $19,500 in 2020 and 2021), or $30,000 in 2023 ($27,000 in 2022; $26,000 in 2020 and 2021) if age 50 or over; plus.

However, the general rule of thumb, according to Fidelity Investments, is that you should aim to save at least the equivalent of your salary by age 30, three times your salary by age 40, six times by age 50, eight times by 60 and 10 times by 67.

If you have a full match, that means 100% of your contributions will be matched dollar-for-dollar. If you have a partial match, such as 50%, your employer will put in 50 cents for every dollar you contribute.

How much do I need in a 401k to get $2000 a month? ›

According to the $1,000 per month rule, retirees can receive $1,000 per month if they withdraw 5% annually for every $240,000 they have set aside. For example, if you aim to take out $2,000 per month, you'll need to set aside $480,000. For $3,000 per month, you would need to save $720,000, and so on.

Experts say that if your company offers a matching contribution, you should make sure you contribute enough to get it all. Another rule of thumb is to save 10% to 15% of your gross salary. After that, shoot for saving up to 20% of your gross salary.

Your employer can never take back your vested funds. However, if any portion of your 401(k) balance is not vested, your employer may reclaim this money under certain circ*mstances — for instance, when your employment status changes.

A typical 401(k) employer match might be between 3% and 6% of an employee's salary, in which case the employee would receive a contribution of 6% of their salary from their employer after contributing 6% themselves.

You'll Enjoy More Tax Benefits

Plus, the investments in your 401(k) will grow tax-deferred, so you won't pay taxes on them until you withdraw the funds in retirement.

Although contributing the maximum amount to a 401(k) is a great way to stay on track for retirement, it isn't always the best option. Consider the full picture of your financial future before you max it out.

Consider saving beyond the match.

Once you're contributing enough to get your employer match, consider saving even more. Fidelity suggests saving 15% of your pre-tax income for retirement, which includes the match.

There's still time to max out 401(k) contributions for 2024 — but some investors shouldn't, experts say. There's still time to boost 401(k) contributions and max out your plan for 2024, but not everyone should, according to financial advisors.

A general rule of thumb says it's safe to stop saving and start spending once you are debt-free, and your retirement income from Social Security, pension, retirement accounts, etc. can cover your expenses and inflation. Of course, this approach only works if you don't go overboard with your spending.