Piggy banks. They’re about as American as apple pie. Saving is one of our great national traditions. And just like your folks may have encouraged you to do it by giving you a dollar for every dollar you saved, many employers offer matching contributions to encourage us to save for retirement.
Strike a match
Some employers will match the contributions you make dollar-for-dollar, up to a certain percentage of your pay. Others may match a portion of each dollar you put in, say, 50%. Regardless, it’s “free money.” Having your employer contribute right along with you makes your retirement account grow faster than if you were the only one putting money in.
Max out your match
Let’s say you work for an employer who matches your 401(k) contributions dollar-for-dollar up to 6% of your $45,000 salary. If you save the full 6%, the company will contribute $2,700 right alongside the $2,700 you’re putting away for your retirement. If you save less than the full 6%, you’re leaving some of that “free money” on the table.
Go for the vest
Vesting is a way for employers to encourage you to stay with them. Basically, it means that while you have full ownership of your own contributions, you’ll only gain access to your employer’s contributions over a designated period of time.
Vesting can happen in two ways: A graduated vesting schedule gives you increased ownership of the employer funds over time until you’re fully vested. A cliff-vesting schedule withholds ownership until you’ve completed a certain number of years of service, at which point you become 100% vested. Once your employer’s contributions are fully vested, they’re yours and you can take them with you if you leave.
Again, max out your match
At the risk of being repetitive, we’ll say it again. Contribute enough to get your employer’s maximum matching amount.
Check out our tax deferral calculator to see how the savings of a tax-deferred plan could stack up for you.
This material is provided for general and educational purposes only; it is not intended to provide legal, tax or investment advice. All investments are subject to risk. We recommend that you consult an independent legal advisor or financial professional for specific advice about your individual situation.
The tax information herein is not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding tax penalties. Taxpayers should seek advice based on their own particular circumstances from an independent tax advisor.
Securities offered through Voya Financial Advisors, Inc. member SIPC.