Unfortunately, not all employers match their employees’ contributions to retirement plans like the 401(k). Even those who do match, don’t necessarily match equally.
– Some match $0.50 on the dollar up to 6% of compensation.– Some match dollar-for-dollar up to 3%.– Some match dollar-for-dollar up to 10%.– Some even contribute a set percentage regardless of the employee’s contribution
Make sure you understand how your employer’s match works. If they aren’t one of those who sidestep the problem, you need to be strategic in how you set up your contributions.
– If your employer doesn’t let you start contributing to your 401(k) from Day 1, find out when you can start and post a reminder on your calendar so you don’t forget it.
– Many employers have a default contribution, which may be much lower than it needs to be to hit the IRS limit (assuming you earn enough and are frugal enough to be able to afford it).
– Pay attention to your employer’s 401(k) vesting schedule – if you decide to move to a different company, you may want to time it after your employer contributions vest, so you can take them with you.
– If your employer offers it, consider making your 401(k) a Roth version; while you won’t get a tax break when you make the contributions, the fact that you can make the same contributions and never be taxed on any withdrawals makes this potentially a very valuable way to fund your retirement.
– If offered in your employer’s plan, choose funds with lower fees (usually those will be index funds, which are often a good choice if you’re not an investing pro).
– Avoid penalties by not contributing more than the IRS limit and remembering to take the required minimum distributions when you’re old enough for those to be in effect.