When it comes to saving money, a 401k plan is the best for getting the most bang for your buck from your employer. This is how it works:
In finance the term “company match” most often refers to how much money your employer will give you towards a savings plan in relation to what you yourself are contributing. For example, many companies offer company matches to their employee’s 401(k) accounts, usually with a cap at a certain percentage. Some companies will match 100 percent of an employee’s contribution, while other companies will match a percentage of the contribution.
Because most employee contributions are based on a percentage of the employee’s salary, many companies state their matching terms in relation to this percentage. For example, if an employee invests 8 percent of his or her salary in a 401(k), the company may state that it will provide a 100-percent match up to 5 percent of the employee’s salary. Some companies offer extremely generous packages, with some even offering a 100-percent match for the full amount of the employee’s contribution – with no cap.
As an example, let’s say that Widget Company offers its employees a 50-percent match up to 5 percent of the employee’s contribution. If an employee making $100,000 a year is investing 10 percent of his or her salary (or $10,000), the company will also contribute an additional $2,500 on top of that amount. That means that while the employee is putting away 10 percent, in reality, he or she is saving 12.5 percent, which might help you legally save even more money than the maximum personal contribution limits allow for.
Company matches are a great way to help your retirement account grow even faster, as they offer an additional way for you to add money without it coming out of your pockets. For this reason, many employees consider a company match to be an important benefit to consider when choosing an employer. Many investment-savvy employees would tell you that not taking full advantage of your company match is almost like throwing money away.
As with making any financial decision, it is always best to seek advice from a professional, such as an accountant or financial advisor. If you have further questions about this or other financial topics, you should seek the guidance of a qualified financial services expert.