Employer match

The match is part of your pay, offered on one condition: that you contribute first. The plan states a formula, most often a fraction of your own contribution up to a cap set as a percentage of your salary, and every paycheck that carries a contribution carries the employer's share alongside it into the same account. A match of 50% of the first 6% of pay is an immediate 50% return on those dollars before they are invested at all, which no fund can offer and no other saving decision comes close to. The match is deposited into your account and becomes fully yours on the plan's vesting schedule.

In a sentence

• "My employer match is 50% of the first 6%, so on a $60,000 salary it adds $1,800 a year if I put in $3,600."
• "She only contributed 3%, so she collected half the employer match and left the other $900 on the table."
• "A bonus arrives whether you save or not. The employer match arrives only when you do."

How it works

1. The plan states the formula: a match rate and a cap. "50% of the first 6% of pay" means the employer adds fifty cents for every dollar you contribute until your contributions reach 6% of your salary; contributions above 6% are yours alone. "100% of the first 3%" is the other common shape, and some plans layer the two, such as the full first 3% plus half of the next 2%.
2. The match is computed each pay period, at most plans, on that paycheck's contribution. A contribution rate that fills the year's limit by summer stops the match with it, unless the plan pays a true-up, a year-end deposit that makes up the difference; a rate spread over every paycheck collects it all.
3. The money lands in your account and is invested the same way as your own contributions, usually before tax even when your own contributions are Roth, so it is taxed when withdrawn.
4. It vests on the plan's schedule. Your own contributions are always yours; the match may become yours over a period of service, all at once or a share per year, and leaving before then forfeits the unvested part.
5. It counts toward the overall limit the IRS sets on everything added to the account in a year, a separate and higher figure than the limit on your own contributions.

Maximum match = match rate × cap × salary

Contribution that collects it = cap × salary

An example

A $60,000 salary and a match of 50% of the first 6%.

The match tops out at $1,800, or 3% of salary, once your own contribution reaches 6%, and every rate above 6% adds only your money. Between 3% and 6% each extra dollar you put in brings fifty cents with it, so raising the rate from 3% to 6% costs $1,800 of pay and adds $2,700 to the account. At the example's assumed 6% annual return, the $150 a month of match alone grows to about $150,677 over thirty years.

Why it matters

The match sets the floor for your contribution rate, and the floor is the cap in the formula. A rate below it declines pay the employer has already budgeted: the household in the example that contributes 3% earns $900 a year less than the one that contributes 6%, for the same job at the same salary, and the gap compounds for decades. The formula also matters when comparing offers, since a 50% match on 6% is worth 3% of salary and a 100% match on 3% is worth the same, and it decides how to handle a raise: keep the percentage and the match rises with the pay. And because the match usually vests over years, it is the part of the balance to check before resigning.

Employer match versus profit sharing

A match is tied to what you contribute; a profit-sharing or nonelective contribution is not. Some plans put a fixed percentage of pay into every eligible employee's account whether or not the employee contributes, and some add a discretionary amount at year end that depends on the company's results; both are employer money, both vest on a schedule, and neither requires you to contribute first. A match rewards the decision to save, which is why it is the more common design and why the contribution rate is the lever that controls it. See 401(k) for the account the contributions go into.

Common questions

Is the employer match free money? It is pay that is paid only into the retirement account and only when you contribute, which makes it the highest-return dollars available to you: a 50% match returns 50% on the day it is deposited. It is free in the sense that nothing beyond your own contribution is required, and yours in full only once it vests.

What is a good employer match? Common formulas are 50% of the first 6% of pay and 100% of the first 3%, each worth 3% of salary, and richer plans go higher. Compare offers on the maximum match as a percentage of salary, the match rate times the cap, and on how fast it vests.

Does the match count toward my contribution limit? Not toward the limit on your own contributions, which the IRS sets separately. It counts toward the higher overall limit on everything added to the account in a year, which few people reach.

What happens to the match if I leave my job? The vested share goes with you, in the account or in a rollover; the unvested share is forfeited to the plan. Your own contributions and their earnings are always fully vested. See Vesting.

Should I contribute more than the match? If you can. The match is the reason to reach the cap; beyond it, the account's tax treatment is the reason to keep going, and whether the extra goes to the 401(k) or an IRA turns on the plan's fees and investment menu.

Go deeper

• The Retirement calculator projects what a monthly contribution, yours and the match together, could grow to by the age you plan to stop working, and the monthly income it could support.
• How to calculate your savings rate shows the rate with and without the match, and why either is fine as long as it is compared with itself.
• How to budget a raise or bonus without lifestyle creep decides the split of a raise before it lands, which is the moment to raise the contribution rate.