What is a 401k Match?

Diane Goettel
Diane Goettel

A 401k match is a savings program in which an employer matches part or all of an employee's contributions to a 401k account. This savings program allows employees to prepare for a financially secure retirement. One of the key features of a 401k plan is that the savings are invested without the assessment of income taxes. In fact, taxes are not assessed until funds are withdrawn from the account.

A 401k match allows employees to prepare for a financially secure retirement.
A 401k match allows employees to prepare for a financially secure retirement.

In order for an employee to participate in a 401k program, she must elect to have a portion of her wages deducted from her paycheck and, instead of becoming immediately accessible cash, having that portion routed into her 401k savings plan. If her employer offers a 401k match, an amount of the same value will be deposited into the account as well. Some employers offer a system in which only part of the employee's contribution is matched. The rules and system of a 401k match program will be reviewed at the time that an employee is hired by a company, when the company begins the 401k match program, or when the employee becomes eligible to take part in the 401k match program.

If one's company offers a 401k match program, it is highly advisable to take part in the program and to contribute as much of one's paycheck as possible and allowable to the 401k account. In so doing, the amount of money that the employer adds to the account will be maximized. The more money that is contributed to a 401k account, the more the owner of the account will be able to use during retirement years.

Although a 401k match program is generally considered to be a very good thing for employees, it is always best to consult with a trusted financial advisor before embarking on any major savings programs. This advisor should be independent of one's company and, therefore, impartial about the 401k match system or any other savings program that the company offers. Also, before signing on for any savings program, be sure to understand all of the rules associated with the program. It is important, for example, to understand the way in which taxes will be assessed upon withdrawal and to know if there is a penalty for early withdrawals and how expensive such a penalty might be. Finally, it is also important to know about the 401k contribution limits and the plan accordingly.

Diane Goettel
Diane Goettel

In addition to her work as a freelance writer for wiseGEEK, Diane is the executive editor of Black Lawrence Press, an independent publishing company based in upstate New York. She has also edited several anthologies, the e-newsletter Sapling, and The Adirondack Review. Diane has a B.A. from Sarah Lawrence College and an M.A. from Brooklyn College.

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