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The 401(k) Match: Free Money You Are Probably Leaving Behind

Published · 2 min read

An employer 401(k) match is a 50-100% instant return, and millions leave it unclaimed. How the match works, the maths on it, and the traps to avoid.

There is no other investment on earth that pays you 50% to 100% on day one. The 401(k) match does, and roughly one in four eligible workers still does not collect all of it.

How the match usually works

The most common formula is 50% of your contributions, up to 6% of your salary. In plain terms:

  • You contribute 6% of pay
  • Your employer adds 3% of pay
  • Total going into your account: 9% of pay

Contribute 4% and the employer adds 2%. Contribute nothing and you get nothing. The match is almost always capped by a percentage of salary, not a dollar amount — so the contribution percentage, not the dollar figure, is what unlocks it.

The maths on a $60,000 salary

Your contribution You put in Employer adds Total invested
0% $0 $0 $0
2% $1,200 $600 $1,800
4% $2,400 $1,200 $3,600
6% $3,600 $1,800 $5,400
10% $6,000 $1,800 $7,800

Go from 0% to 6% and your retirement account grows from nothing to $5,400 a year. That is a 50% instant return on the money you put in, before any market gains.

401(k) Calculator — Project your balance with employer match — and see the match money you're leaving on the table.

What 30 years does to that money

$5,400 a year at a 7% average return compounds to roughly $510,000 over 30 years. Of that, your employer contributed $54,000 and compound growth turned it into about $170,000 of the total.

Skip the match and you are not "saving money" — you are declining a raise.

The traps

  1. Vesting. Many matches vest over 3-5 years. Leaving early can cost you part of it.
  2. The default fund. Target-date funds are fine; a money-market default quietly kills your returns.
  3. Fees. A 1% expense ratio costs you roughly a quarter of your final balance over 30 years.
  4. The cap is a percentage. Contribute the minimum that captures the full match before you optimise anything else.
  5. True-up rules. Some plans only match per paycheck, so front-loading can cost you part of the match.

Check your own numbers

Find the match formula in your plan document or benefits portal, then model it: 401(k) calculator. Include the match, a realistic return, and a salary growth rate — the gap between "with match" and "without" is the most motivating number in personal finance.

Use these tools to get started

  • 401(k) Calculator — Project your balance with employer match — and see the match money you're leaving on the table. (Free)
  • Roth vs Traditional IRA Calculator — Same dollars, two tax treatments. See your after-tax spendable balance at retirement under each account. (Free)

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