3 Reasons to Get the 401(k) Company Match in 2024

Many companies offer the option to contribute to a 401(k), and the company will match a portion of those contributions.

However, many investors leave this “free money” on the table by not contributing enough to receive the full 401(k) company match.

If your employer offers a 401(k) company match, 2024 is the year to take advantage. Keep reading for 3 reasons why.

#1 Stay ahead of Inflation

If you want to stay ahead of inflation eating away at your purchasing power in retirement, your savings need to grow faster than the rate of inflation.

Whether you can beat inflation or not really depends on the inflation rate and the level of returns you earn each year.

But stocks have proven to be the best inflation hedge longer term.

And that’s where investing in your 401(k) becomes advantageous – and this includes making sure you get the 401(k) company match.

The market has averaged about 9.4% a year since 1928, which greatly exceeds inflation measurements by 4 – 5%.

In fact, when you look at the 17 highest inflation years, the market was up 12 of those years and up double digits in 8 of the 17 years.

In the 5 highest inflation years, the market was up 4 of those years.

Contributing enough to receive the maximum 401(k) company match can significantly boost your retirement savings and help keep your money ahead of inflation.

Company matches increase your returns right off the bat.

Even a relatively small match, like 50 cents per dollar up to 6% of your salary, doubles the effect of your contributions on a portion of your paycheck.

That’s an instant 100% return your employer is providing.

These matching funds then benefit from the same compound growth as your own savings over the decades until retirement.

[Related Read: Investing More in Your 401(k) May Help You Beat Inflation]

#2 Withdraw Tax-Free in Retirement

Thanks to the Secure Act 2.0, employers can now match the Roth option in 401(k)s.

Prior to this law, employer matches had to be made with pre-tax dollars, go into your traditional 401(k), and then you’d have to pay taxes on the money when you withdrew it later on.

Not anymore.

If you are fortunate enough to have this option in your plan, why not take advantage of it and get tax-free withdrawals in retirement?

Note: Matching contributions directly to a Roth 401(k) is an option for employers. It’s up to your employer to decide to offer this or not.

#3 Get Tax Breaks Now

401(k) contributions come out of your paycheck pre-tax. Meaning the money goes into your savings before it is taxed and isn’t included in your taxable income.

Plus, any investment gains accumulate tax-deferred.

This allows your money to compound faster over the long run versus contributing after-tax dollars to an external savings vehicle.

Making sure you at least get the 401(k) company match not only ensures you get “free money” to grow your retirement savings faster, but it also may reduce your taxable income now.

Types of 401(k) Company Matches

There are 2 main types of 401(k) company matches: partial and full matching.
Partial Matching
This is where your employer matches your 401(k) contributions, up to a certain percentage.

For example, your employer may match contributions up to 50% of what you save, up to 6%.

Most companies usually set a limit to how much of your base pay you can contribute until they stop matching. This is usually set at 4% or 6% of your annual salary.
Full Matching
The full match is also known as the dollar-for-dollar match or 100% match.

This is where your employer matches your entire contribution, up to a certain amount.

For example, let’s say your employer allows up to 4% to be matched. If you contribute 4% of your salary, your employer will match that 4%.

Don’t Say No to Free Money!

Your company match is essentially free money being offered to boost your retirement savings.

Leaving this on the table is like turning down a guaranteed return on your investment.

Even a small company match, like 50 cents on every dollar you contribute up to 6% of your salary, adds up significantly over your career.

Remember, this is your retirement future that’s at stake. Do what you can today to ensure a brighter future tomorrow.

Have questions or concerns about your 401(k) performance? Click below to book a complimentary 15-minute 401(k) Strategy Session with one of our advisors today.

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