JagInsights › Lessons › 401(k) match
How an employer 401(k) match actually works
The match is not a market return. It is part of the paycheck that only shows up inside the plan, and only if you put in the dollars the formula asks for.
Read the plan summary. Contribute at least what the formula requires, if the rest of the budget can hold it. Your own dollars are yours. The employer dollars become yours on the vesting schedule.
The formula is the whole product
A common classroom example is 50 percent of the first 6 percent you contribute. On $50,000 that 6 percent is $3,000 from you and $1,500 from the employer if you actually contribute the 6 percent. Contributing 2 percent leaves most of the match unearned. The real formula is in your plan, not in this example.
The IRS sets an annual contribution cap that changes. This lesson does not quote it. Payroll stops you when you hit it.
Vesting is a calendar, not a vibe
Your own contributions are yours. Employer dollars often vest on a cliff (nothing, then all at a date) or on a graded schedule (a percent each year). Leaving one day before a cliff can forfeit the unvested match. That is the rule, not a trick this site invented.
Some plans match each paycheck. Front-loading the year can mean later paychecks have nothing left to match, unless the plan does a year-end true-up. The plan document says which kind you have.
When you leave the job
Vested dollars can usually stay in the old plan, roll to a new employer plan, or roll to an IRA. Cashing out is a distribution, often with tax and an extra penalty before a set age. This page does not pick the destination.
Unvested employer dollars typically go back to the plan. Count only the vested amount as yours before you quit.
Questions people ask
Is the match free money?
It is extra pay with rules: the contribution you must make, vesting, and the IRS cap. Read the plan.
Do I contribute more than the match?
That depends on high-interest debt, the emergency fund, and the rest of the budget. This page does not pick a percent.
Traditional or Roth for the match?
The employer match is often traditional even if your own dollars are Roth. The plan summary is the source.
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