Understanding your 401(k) match, it's free money

I'll keep this one short because the math is simple. If your employer offers a 401(k) match and you're not contributing enough to get the full match, you're declining free money. Not in a metaphorical sense. Your employer is literally offering to hand you cash and you're saying no.

How matching works

Common formulas:

• 50% match up to 6%: Contribute 6% of salary, employer adds 3%
• 100% match up to 3%: Contribute 3%, employer adds 3%
• Dollar-for-dollar up to 4%: Contribute 4%, employer adds 4%

Example: You earn $80,000/year. Your company matches 50% up to 6%.

• You contribute: $4,800 (6% of $80,000)
• Employer adds: $2,400 (50% of your contribution)
• Total: $7,200 going into your 401(k)

That's an instant 50% return before any investment gains.

Vesting schedules

Some employers require you to stay a certain number of years before the match is fully yours:

• Immediate vesting: Match is yours right away
• Cliff vesting: 0% until year 3, then 100% at once
• Graded vesting: 20% per year over 5 years

Check your plan documents. If you're leaving a job before fully vested, you forfeit unvested contributions.

Contribution limits (2026)

• Employee contribution limit: $24,500 ($32,500 if 50+, $35,750 if ages 60-63)
• Combined employee + employer limit: $72,000

The match doesn't count toward your personal $24,500 limit.

Should you contribute beyond the match?

Yes, if:

• You've maxed out your Roth IRA ($7,500/year)
• Your 401(k) has low-cost index funds
• You're in a high tax bracket now

Maybe not, if:

• You have high-interest debt (>6%)
• You haven't built a 3-month emergency fund
• Your 401(k) only offers expensive actively managed funds

The bottom line

At minimum, contribute enough to get the full employer match. It's the highest guaranteed return you'll ever get.

After that, compare your 401(k) options against a Roth IRA. If your 401(k) has good fund choices (low-cost index funds), keep contributing. If not, max your Roth IRA first, then circle back to the 401(k).