These accounts offer similar tax benefits and employers can also offer a matching contribution.) (If you work for a nonprofit or a public educational institution, you may have access to a 403(b) rather than a 401(k). The money is swept into an account where you can invest in funds selected from a menu offered by your employer. Here’s how 401(k) matching works and how it can help you save more for retirement.Ī 401(k) is a type of Internal Revenue Service-sanctioned retirement plan that is funded by deducting part of your paycheck before it is taxed. However, there are often conditions you have to meet to be eligible for a 401(k) match, such as serving at least a year at the company. “Employer matching in a 401(k) plan is like having someone else fill up your gas tank for free,” says Andrew Latham, a certified financial planner based in Rolesville, N.C., and content director at the financial website SuperMoney. To many financial experts, those extra contributions are like found money.

So, for instance, an employer offering a full 3% match would contribute one dollar to your 401(k) for every dollar that you put in yourself, up to 3% of your salary. In addition to the money you invest, many employers match a portion of your contributions. īut tax advantages aren’t the only benefit 401(k)s offer. In 2021, these accounts held more than $7 trillion, or one-fifth of all retirement assets, according to the Investment Company Institute. Unless you are one of the shrinking number of Americans who can count on a pension, chances are a 401(k)-which lets you sock away pretax money to spend once you leave the workforce-is at the center of your retirement plan. You may have heard that there’s no such thing as a free lunch, but to the millions of Americans whose employers offer them a 401(k) match, this perk comes close.

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