Maximizing Your Matching Contribution
Your employer may make a matching contribution to your account for every dollar you save into your 401(k) account up to a certain percentage. This means every dollar you set aside for your retirement is worth more than 100 cents. Your employer is not required to make any contribution to your plan, see your enrollment materials or contact your plan sponsor for details about your plan.
Many employees on a tight budget think they cannot afford to save, but when it comes to your future retirement, you can’t afford not to save. Take a look at the chart below and see what a small contribution to your future can mean for your retirement savings account.
|Annual Income||Your Deferral||Your Annual Contribution||Match Received||Total Annual Contribution||Your Total Cost|
This example assumes a match of 100% of every dollar deferred on the first 3% deferred and 50% of the next 2% deferred. It also assumes a combined State and Federal tax rate of 27.5%.
For an employee earning $30,000 annually, taking advantage of an employer match might look like this. If you are saving 5% pre-tax, your paycheck for the year would only be reduced by $1,088 while your 401(k) account would receive $2,700!
Roth contributors would see a paycheck reduction of $1,500 but their account would grow by $2,700, and earnings on the $1,500 Roth Contribution would be tax free under a qualified Roth distribution.