What is a 401(k) match, and how much should you contribute?

An employer match means the company contributes to your 401(k) based on what you contribute, commonly something like dollar-for-dollar on the first few percent of your salary, or fifty cents on the dollar up to six percent. The exact formula is in your plan documents. The universal advice, and one of the few pieces of financial guidance with essentially no dissent, is to contribute at least enough to capture the full match, because that money is part of your compensation package and leaving it unclaimed is a voluntary pay cut, often thousands of dollars a year.

Two details decide how much of it you keep. Vesting is the schedule on which employer contributions actually become yours, some plans vest immediately, others over several years, and leaving early can forfeit unvested employer money, which is worth knowing before you change jobs. And contribution limits are set annually by the IRS, with additional catch-up room after 50. Beyond the match, the usual sequencing is: capture the full match, pay off high-interest debt, build an emergency fund, then increase retirement contributions toward a target often cited around 15 percent of income including the match. Inside the plan, favor low-cost index or target-date funds, since fees compound against you the same way returns compound for you, and check what your plan actually charges.