FREE Money: Matching Contributions in Employer Retirement Plans
By Joe Cicchinelli, IRA Technical Expert
Follow Me on Twitter: @JoeCiccEdSlott
Employer retirement plans such as 401(k)s and SIMPLE IRA plans offer a matching contribution to employees who choose to contribute. These plans provide that your employer will match some portion of the amount you contribute to your retirement account.
An example of a 401(k) plan matching formula is 50% of your contributions up to 5% of your annual salary. For 2012, only the first $250,000 of your salary can be used for plan purposes.
- are contributions your employer makes to your retirement plan account, but only if you contribute to the plan from your salary
- grow tax-free while in the plan
- are taxed only when distributed
If you don’t contribute to the plan, you are walking away from “free” money. The more you contribute to the plan, up to the plan’s match limit, the more matching contributions you’ll receive.
Example: You contribute $1,500 from your $30,000 annual salary to your company’s 401(k) plan. Your employer’s 50% match of up to 5% of your salary means you’ll receive an additional $750 (50% x $1,500) that’s added to your retirement account.
This tweet from one of our followers agrees with the sentiment that you must take advantage of free money through proactive retirement planning from Day 1.
Are you contributing to your company's 401(K)? Take advantage of the savings boost you can get from your employer's match!
— eCO Credit Union (@eCOCreditUnion) July 9, 2012
The retirement plan information your employer gave you will tell you how long you have to work before receiving these contributions and the matching formula. But the money may not be yours right away. You may have to work for the employer for a specified period before you are “vested” in the plan. If you leave your employer before you are fully vested, you are not eligible to withdraw the employer match funds and you will lose them.
Content Citation Guidelines
Below is the required verbiage that must be added to any re-branded piece from Ed Slott and Company, LLC or IRA Help, LLC. The verbiage must be used any time you take text from a piece and put it onto your own letterhead, within your newsletter, on your website, etc. Verbiage varies based on where you’re taking the content from.
Please be advised that prior to distributing re-branded content, you must send a proof to firstname.lastname@example.org for approval.
For white papers/other outflow pieces:
Copyright © [year of publication], [Ed Slott and Company, LLC or IRA Help, LLC - depending on what it says on the original piece] Reprinted with permission [Ed Slott and Company, LLC or IRA Help, LLC - depending on what it says on the original piece] takes no responsibility for the current accuracy of this information.
Copyright © [year of publication], Ed Slott and Company, LLC Reprinted with permission Ed Slott and Company, LLC takes no responsibility for the current accuracy of this information.
For Slott Report articles:
Copyright © [year of article], Ed Slott and Company, LLC Reprinted from The Slott Report, [insert date of article], with permission. [Insert article URL] Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article.
Please contact Matt Smith at email@example.com or (516) 536-8282 with any questions.