Although it may go without saying, I love free money. I work hard for my money, and expect my money to work hard for me. Free money is pretty rare, so if and when I get the chance to get some, I definitely want to take it. One such opportunity that most young professionals run into today is a 401(k) match, aka free money provided by your employer that goes into a retirement plan. It amazes me how some people don’t think this is important to take advantage of! So, I wanted to share my thoughts on the matter and why it’s DUMB to turn down FREE MONEY. 

 What is a match and why it’s free money?

Employers in today’s world know you have a lot of options. Millennials change jobs fairly often, don’t we? I’ve had 4 jobs in my 8 years of being out of college. Losing and rehiring employees is expensive for employers, and they’d rather the good ones stick around rather than lose them. So, in addition to a salary, employers also offer a variety of benefits to employees, and one of them is a retirement match.

Many employers will offer as part of the benefit package a fixed percentage match that they will give you. This match will have two things to look out for: the percentage and the vesting period. The percentage may be a fixed percent, i.e. we’ll match the first 6% of your salary, or we’ll match 3% then 50% of the next 3%, which works out to more like 4.5%. I’ve had matches as low as 2% and as high as 6%. 

So, that means that if you get a 2% match and put in 2%, they are doubling your contribution. Or, if they match 6%, realistically you could just contribute 9%, have them match 6%, which would be 15% total, which is the recommended percentage for young professionals. 

How does it work? 

Each paycheck, the employer will match your contributions, dollar for dollar up to the maximum match. The match comes in pre-tax, so you’ll pay taxes on it years from now when you pull it out. So, paycheck by paycheck, they’ll give you free money into your retirement account to help you save. 

The second part to keep an eye on is the vesting period. Just like an employer can set the terms of the match, they also set the terms for how long you have to wait before the money is truly yours. The money will show up in your account, but won’t count towards your vested balance, i.e. the money that is 100% yours. Sometimes vesting will occur right away (sweet!), or it will maybe take a year, or more. My first job saw the vesting occur each year in December, so all the matches became mine in December. My second job saw it vest 25% each year, so at 4 years I would get 100% of the match prior and moving forward. Inconveniently I left both jobs about a month prior to a vesting time. Thankfully the job offer paid more so it was worth forgoing the match! 

Once the money has vested, it’s yours! What’s also nice is that you don’t have to pay any taxes on it now (you’ll do so in retirement) and this match doesn’t count towards your contribution limit ($19,000/year). All in all it’s a win-win!

Why you might not take free money

Ok, as much as I hate turning down free money, I don’t think you should do so in order to make other dumb financial moves. If you’re not in a spot where you can realistically contribute up to the match amount, then don’t. If your debt payments, building up of an emergency fund or your bills don’t allow you to, then take care of those (quickly) and then find a way to get back to taking advantage of the whole match! 

If you’re employer offers a match, lucky you! I trust you’re taking full advantage of it, and enjoying that free money! 

Thanks for reading! I hope this was helpful information. If you’re interested in learning more, check out my guides on Saving for Retirementand Understanding Employer Benefits. These guides have all the info you need, without inundating you with stuff you don’t need to know. Easy to read and practical! Also, the first 50 people who use coupon code “ymfguides” get 50% off!