Savings & Retirement

What Does a 6% 401 (k) Match Mean?

401k-picture

Why 401 (k) Match Is Important?

Maximizing the 401 (k) plan match is an important element in planning a successful retirement. 401 (k) plan allows you to save your retirement money on a deferred tax account. A match from an employer means that the employer contributes a percentage of your own contribution. Also, do not forget that contributions are made before taxes. Before you start saving for under the 401 (k) program, consider what percentage of your income you are willing to save for retirement. Keep in mind that for premature use of funds (before retirement), may be applied penalties.

What Is 401 (k) Match Rate?

In order to encourage employee loyalty, employers participate in the 401 (k) program, offering to increase the monthly amount of savings. How much your employer will contribute one dollar paid by an employee is called a match rate. Match rating is measured as a percentage. That is if you deposited a dollar, and the employer 50 cents, then the match rate is 50%. As a rule, the minimum match rate for companies is 45-50% of the employee contribution, and the maximum match rate can reach 100% and in some cases be even bigger. If you do not know what matting rate your company has, then contact HR department for more information. Also note, that not all programs begin immediately, so you also need to clarify this question if you decide to change the workplace.

6% 401 (K) Program Match Explained

The 6% 401 (k) match can mean several situations, and you should discuss in the HR department which one yours belongs to. The most common match of 6% 401 (k) means that the employer will pay a certain percentage of your funds until the amount of your contribution for the year reaches 6%. That is, if your salary is $60,000 per year, you will pay $3,600 per year and the employer will increase the amount of your savings for the established match rate.

This is a common condition from the employer and even if you contribute 15% of the annual salary into your 401 (k) account, the employer will increase only the first 6%. Therefore, never limit yourself to clarify with the employer all the conditions regarding the 401 (k) match and match rate.