A retirement plan with an employer match is usually the best place to save money for your golden years. hugo_34 ShutterstockThis is especially true if you have enough money in your account to cover the entire match.However, many employees miss out on this free money by not taking advantage of their employer match.According to an Empower Institute survey released last year, 23 percent of people who are saving money in a workplace retirement plan such as a 401(k) are unaware of their company’s match formula.Knowing that formula, as well as the maximum contribution limit for any type of retirement account, can save you thousands of dollars each year.
How to get the most out of an employer match
You can’t plan your own contributions to ensure you get the full match each year if you don’t know your employer’s match formula.So, if you don’t know the formula, you could be missing out on a lot of free retirement money.To fix this, go to your retirement account and look through the paperwork, or ask your employer’s human resources department where the employer match formula can be found.It will most likely sound like this: The employer will match 100% of employee contributions up to 6% of the employee’s salary.Your formula should be able to be broken down into two parts.
- The percentage of your contribution that your employer matches. For example, a 100 percent match means that your employer will match every dollar you contribute.
- The percentage of your salary that your employer matches A salary match of 6% means that your employer will match up to that amount.So, if you make $50,000 per year, your employer will contribute up to $3,000 to your retirement plan each year unless there is a lower limit.
In the second example, you must contribute $3,000 to your employer-sponsored retirement account each year in order to receive the entire $3,000 from your employer.So, if you get paid monthly, that’s 12 times a year, you’ll need to put aside $250 per paycheck to get the full match.Check to see if you have enough money deducted from your paycheck to get the entire free 3000 match.Logging into your account online should allow you to do so.
How to get the most out of any tax-advantaged retirement plan
You must also be aware of the contribution limit for any tax-advantaged retirement account, such as a 401(k), individual retirement account (IRA), or health savings account (HSA).These accounts are subject to IRS rules that limit the amount of money you can contribute each year to the government.The amount you can contribute is determined by the type of account you have and your age.To keep up with inflation, the federal government raises the limits on a regular basis.For example, the current contribution limits for 401(k)s are $19,000 for those 49 and younger and $25,000 for those 50 and older.Other contribution limits will rise in 2021, as detailed in Limits for 401(k) IRA and Other Retirement Plans to Rise in 2021.Check out Confused by Retirement Accounts Roth Regular IRAs and 401(k)s Made Simple for more information on tax-advantaged accounts.Do you know how to maximize your employer match? Tell us about it in the comments section below or on our Facebook page.The information you’ll find on this site is always objective.However, we may be compensated if you click on links within our stories.