5 Tips to Maximize Your 401(k) Match

Find out how your employer’s contributions compare to those offered at other companies


The median Vanguard 401(k) account balance fell by 14 percent among continuous participants between 2007 and 2008. Ongoing contributions and maximizing your 401(k) match are the best way to recoup those losses. But all 401(k) matches aren’t created equal. Vanguard administered 401(k) plans with more than 200 different match formulas in 2008, according to a recent analysis of 2,200 Vanguard retirement accounts with over 3 million participants. Here’s how to make the most of your employer’s 401(k) match.

Sign up on time. Only about half (53 percent) of Vanguard 401(k) plans allow employees to contribute to the 401(k) plan immediately after beginning their job. In the rest of the retirement plans workers have to wait one to three months (24 percent), 4 to 6 months (8 percent), or 1 year (15 percent) to participate. Even more companies impose a waiting period before employees qualify for the 401(k) match. While 41 percent of Vanguard 401(k) plans match employee 401(k) contributions immediately, 29 percent of companies don’t match contributions until a year of service is completed and 30 percent require a 1 to 6 month delay. Learn the rules of your plan to make sure you sign up in time to bank the match you’re entitled to.

Contribute enough. Employees in most plans (47 percent) need to contribute 6 percent of pay to receive the maximum employer contribution. Other 401(k) plans ask workers to save 5 percent of their salary (18 percent), 4 percent (12 percent), or 3 percent or less of pay (10 percent). Just 13 percent of plans required the employee to save 7 or more percent of their salary to get the entire match offered.

Figure out the formula. The most popular match, used by three quarters of companies, is 50 cents for each dollar the employee saves up to 6 percent of pay. A slightly less common match, used by 16 percent of plans, is a multitiered formula, such as an employer contribution of $1 for each dollar the worker saves for the first 3 percent of pay and 50 cents per dollar for the next 2 percent of pay. Some 401(k) providers also varied their match formulas based on age or job tenure. About 7 percent of plans had a maximum cap on the employer contribution, such as $2,000. Only 6 percent of plans made no employer contributions of any kind in 2008.

Get other employer contributions. Some companies make profit-sharing contributions to 401(k)s regardless of how much the employee saves. Three quarters of employers making discretionary contributions varied the amount by age or tenure, making a median contribution of 4 percent of pay. If your employer offers a profit-sharing plan, find out what the eligibility restrictions are and what you need to do to participate.

Access the total value. At the end of the year, of course, what matters is the total value of the money in your 401(k). Most 401(k) matches ranged from 1 to 6 percent of the employee’s salary, with a median value of 3 percent of total pay. If you earn $50,000 a year and maximize a 3 percent match, that’s an extra $1,500 to pad your nest egg.