Maximize Your Employer Match
When it comes to building long-term financial stability, the small steps you take consistently often matter just as much as the big ones. One of the most valuable — and sometimes overlooked — opportunities available through many employers is the retirement plan match.
If your company offers matching contributions in your 401(k) or workplace retirement plan, taking full advantage of that feature may potentially support your overall savings strategy.
What an employer match actually is (and why it matters)
An employer match is a contribution your company makes to your retirement account based on what you contribute. Instead of thinking about it as “extra” or “free,” it may help to view it as a part of your overall compensation — one that is only unlocked when you contribute enough to meet the plan’s match formula.
Example:
If you earn $100,000 and your employer matches 4% of your salary, your contributions could prompt an additional $4,000 from your employer each year. Those contributions then invest alongside your own and may grow over time, depending on investment performance.
Understanding your match formula may help you avoid unintentionally missing part of your total compensation package.
Ways to check if you’re contributing enough to receive the full employer match
Many plans match contributions per paycheck, not in one annual calculation. This detail can affect how much you ultimately receive.
If contributions are made rapidly early in the year and you reach the IRS annual limit before your final paycheck, your own contributions — and potentially your employer’s matching contributions — may stop for the remainder of the year. To help manage this, some individuals choose to spread their contributions throughout the year so that each pay period remains eligible for matching contributions, depending on their plan’s rules.
Common mistakes to watch for
1. Contributing below the match threshold
If an employer matches up to 4% of your salary and you contribute less, you may not be accessing the full amount available under your plan’s formula.
2. Overlooking the vesting schedule
Some employers require a period of service before their contributions fully belong to you. Knowing your vesting schedule can help you understand what you’re eligible for if you change jobs.
3. Assuming all plans work the same
Match formulas vary widely. Some match on a dollar-for-dollar basis; others contribute a percentage. Some match each paycheck; others true-up at year-end.
Your plan documents — or a quick conversation with HR — can clarify these details.
Why it helps to read the fine print
A brief review of your plan’s specifics can offer clarity on:
- Match formula: What percentage is matched, and up to what limit?
- Match frequency: Per paycheck? Monthly? Annually?
- Vesting schedule: When do employer contributions fully become yours?
This information may help you align your contributions with the way your plan operates.
How the employer match fits into your broader financial picture
The employer match is often a foundational part of a retirement strategy. For many households, ensuring contributions are eligible for the full match may help increase the total amount directed toward retirement savings, depending on how the plan is structured.
After ensuring contributions are eligible for the full match, you may wish to review additional planning steps that could support your broader financial goals, such as:
- Maintaining an emergency fund
- Paying down high-interest debt
- Increasing retirement plan contributions
- Considering HSAs, Roth IRAs, or other investment accounts
Each layer builds on the last.
Set up your contributions in a way that works for you, and your plan can continue operating automatically from there. Understanding your match formula — and adjusting your contributions accordingly — may help you understand how to fully use your plan’s matching provisions. From there, your contributions continue automatically, creating a consistent structure for long-term saving.
A few minutes spent reviewing your plan today may help keep your retirement strategy aligned with your long-term goals.
About the Author: Katy McDonald, CFP®, is a Lead Advisor at Brighton Jones. She helps high-income professionals and families design tax-efficient investment strategies and retirement plans aligned with their values and long-term goals.
Brighton Jones LLC is an SEC-registered investment adviser. Registration does not imply a certain level of skill or training. This material is for informational purposes only and is not intended to provide tax, legal, or investment advice. All investing involves risk, including the possible loss of principal. Please consult a qualified professional regarding your personal circumstances.
