What a 401(k) match actually is, with real numbers
Employers describe the match in a sentence designed by a lawyer. Here it is in a table.
I worked for four years before someone at lunch asked me what my match was. I didn’t know. I was contributing 2% because that was the default, and my employer matched up to 6%. I gave back roughly two thousand dollars a year for four years without noticing.
The sentence, decoded
A typical plan says something like “100% of the first 3%, then 50% of the next 2%.” Translated:
| You contribute | Employer adds | Total going in |
|---|---|---|
| 0% | 0% | 0% |
| 3% | 3% | 6% |
| 5% | 4% | 9% |
| 6% | 4% | 10% |
| 10% | 4% | 14% |
The match stops growing at 5% in this example. Below that, you’re leaving money behind. Above it, you’re saving more, which is fine, but there’s no extra bonus.
A 100% match is a 100% return on the day the money goes in. There is no investment, anywhere, that reliably does that.
Vesting: the catch
Some employers make you stay a certain number of years before the matched money is fully yours. Your own contributions are always yours. Check the vesting schedule before you plan to leave a job; sometimes waiting three months is worth thousands.
What to do today
Log in to the benefits portal, find the match formula, and set your contribution to at least the number where the match stops growing. It takes ten minutes.