Maxing Out Your 401k Matching – Don’t You Dare Leave Money on the Table!

401k matchingIf you’ve ever heard the phrase “don’t leave money on the table”, then you know that it’s a saying for walking away from a deal where you could made a whole lot more! While none of us ever wants to do this intentionally, our actions sometimes result in the contrary; especially when it comes to 401k matching from your employer!

If you have a 401k retirement plan (or any other employer sponsored retirement plan) where they have some type of “matching” system of putting money in your account for you, and yet you DON’T contribute as much as you need to get that full match, then you’re just leaving money on the table! Why are you passing up FREE money?

Don’t think it’s not that much money to care? That it’s not a big deal?  That investing in your IRA vs 401k is the better bet?  I always here these accuses from my fellow co-workers and it drives me crazy! Let’s run the numbers and find out just how much money you’re actually losing.


401k Matching Example – Only Half:

Let’s say you work for Company X and make $60,000 per year gross (before taxes). Company X has a generous 401k matching plan where they will match a quarter of a percent for every 1 percent of your salary that you contribute to your 401k, up to 8%. For example: If you contribute the full 8% of your salary, they contribute 2%.

Now for whatever reason, you stubbornly only contribute 4% to your 401k which results in a 1% match (half of the maximum of what your employer is offering).

$60,000 (your fake salary) x 4% (your contribution) x 0.25 (401k matching) = $600

You say “That’s only $600 per year; that’s no big deal! It’s only $18,000 by the time I retire in 30 years!” But I say it is a big deal …

Sure the straight-line calculation of $600 x 30 years = $18,000. But what about the future investment value of that money?

Over a 30 year time span, that $600 invested with an 8% annualized return (perhaps in a stock market index fund) is going to leverage the effects of compound interest to turn into a potential value of $67,970! That’s 3.8 times more than what you THOUGHT you were losing.

401k matching

Over a 40 year time span, that $600 x 40 years = $24,000 is really a potential investment value of $155,434 in lost 401k matching money! That’s almost 6.5 times more money that you thought! Now does this qualify as a big deal??


401k Match Example – Nothing at All:

What if you were EXTRA stubborn and didn’t invest at all in your employer’s retirement plan to get that full 401k matching? What’s the maximum potential loss in free money from your employer (or gain if you take FULL advantage of it)?

Going back to our Company X example, their maximum 401k match is a quarter to a dollar up to 8% which equals:

$60,000 (your fake salary) x 8% (your contribution) x 0.25 (401k matching) = $1,200

Crunching the numbers, our graph looks like this:

401k matching

You’d be missing out on the following:

• In 20 years, you’d have lost $24,000 in straight contributions or a potential investment value of $54,914!

• In 30 years, you’d have lost $36,000 in straight contributions or a potential investment value of $135,940!

• In 40 years, you’d have lost $48,000 in straight contributions or a potential investment value of $310,868!


The Bottom Line – Get Your Full 401k Employer Matching Contribution:

Don’t miss out.  Make getting your full 401k matching part of your money design.  Talk to whoever handles your 401k plans at work and find out what the rules are (each employer is just a little different). Find out how you can MAXIMIZE your 401k matching contributions from your employer and take advantage of their FREE money. Judging from the modest examples above, can you really afford not to?

Readers – Do you know what the rules are to get your full 401k matching from your employer (or similar retirement plan)? Are you already taking advantage of it? If no, why not?


Related Posts:

1) How to Pick Good Mutual Funds for Your 401k or Retirement Plan

2) Six Easy Steps to Figuring Out Your Retirement

3) How to Retire on 500K with the Greatest Potential

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  1. says

    I had a company match in the UK and decided to leave it because I REALLY wanted to buy a house and needed all the money I could get to achieve my goal as soon as possible. I did the math and that property which is now rented is yielding me higher interest than the company match. Plus being a foreign worker I had no idea how to bring my pension fund with me should I leave the country.
    Pauline recently posted..Are you a good tenant? Lower your rent!My Profile

    • MMD says

      Good for you Pauline! Your situation is definitely an exception to the rule. I’m afraid that most people who don’t contribute the full amount to their company retirement plan are probably not locking up real estate deals and making bigger returns. I am glad to hear that you were able to find a better opportunity with your money.

    • MMD says

      4 percent! That’s twice what I get, so good for you! I also contribute far more than the company match. In fact, I advocate getting all the way up to the full $17K legal limit.

  2. Justin @ The Family Finances says

    My employer matches dollar for dollar up to 4%, then 50 cents on the dollar for the next 2%. So, if you contribute 6% the company throws in another 5%. Plus they give everyone an automatic 2%. So, really if you contribute 6%, the company throws in 7%, for a combined 13% contribution. Very nice.
    Justin @ The Family Finances recently posted..Choose Your College Major CarefullyMy Profile

    • MMD says

      Holy cow! Where do you work and can I transfer my 401k plan over there! That’s one heck of a plan; a real keeper. You’d have to be crazy not to take full advantage of that gold rush!

  3. Justin@thefrugalpath says

    Getting my wife’s 401k match was the very first thing I did when I began becoming serious about money.
    I really believe most people don’t care that they are losing out on thousands of dollars of “free” money. Most people don’t want to wait 40 years. They would rather have it now.
    Five years ago when my wife started putting money into her 401k I was so excited and told a friend at work. He laughed at me and said what’s the big deal I’d rather upgrade my tv its only a few thousand dollars. How is that going to help you retire.
    People often don’t realize how powerful saving for retirement is until its too late.
    Justin@thefrugalpath recently posted..Goodbye Swiffer Refills Hello SavingsMy Profile

    • MMD says

      Justin, that is so true! Thanks for sharing and welcome to the site. Like the people in your story, it must be nice for some people to be so lazy that they can stick their nose up at “a few thousand” dollars per year. I unfortunately believe that this stubborn ignorance will lead to a much bigger problem down the road when people discover there is no gold at the end of the rainbow.

  4. Rich@Money Help for Pastors says

    Do you subscribe to Dave Ramsey’s point about not contributing to your 401-K when you’re in debt, and using the amount you would have contributed to increase your debt payoff?

    5-6 years ago, we stopped contributing to our 403-B for a few months in order to focus more on our debt snowball. But then we changed our minds. My employer matches 12% when I contribute 5%…and we figured that was too good to pass up.
    Rich@Money Help for Pastors recently posted..Win a Free Copy of The Sound Mind Investing HandbookMy Profile

    • MMD says

      Dave Ramsey’s advice is good, but I feel as though it centers on a very unique audience – namely those who are in debt and don’t know what to do next. For me, the difference between paying for debt or making an investment is simple – who has the higher rate of return? Its just arbitrage. For example, I prefer to fund my Roth IRA over paying off my mortgage because my Roth could stand to make 8% versus my mortgage being only 3.75%. Along those same lines, I prefer to fully fund my 401k over paying off my house and car. However, to Dave’s point, if I was drowning in credit card debt at 25%, then I’d probably be a little more willing to sacrifice my 401k until my head was above water.

      Also to Dave’s point, some people need that feeling of accomplishment of being out of debt. I don’t blame them because it gives you the confidence to take on other financial aspects of your life. Plus it takes almost no investing knowledge to be financially healthy if you can manage to reach a status of being debt free; a status that not many people in America can claim.

      Wow, 12%! That’s one incredible match. I think you were right to sign back up and not pass that up.

  5. says

    Luckily I listened to my parents from the moment I became a nurse and started putting away money into my 401K. That was one of the first things I learned about when I received my benefited job! I agree, it is DUMB to pass up on free money! The killer thing is that I have a 401k at both of my jobs with employers that match a certain percentage 😉 I LOVE FREE MONEY!!!!
    Nurse Frugal recently posted..Fabulous FridayMy Profile

    • MMD says

      All the more reason to appreciate the priceless advice of Mom and Dad. That’s great you’re getting the benefit from both jobs, but when did you get two jobs?

    • MMD says

      Shawn, its never too late! Reading, asking questions, and making sense of the 401k rules at my work is one of the things that set off my financial path. I believe this will be well worth your effort.

  6. says

    My company used to provide pension plan, but instead now, they’ve bumped up matching contribution percentage from 5 to 6. They match 50 cents on every dollar invested up to 6%. It’s insane not to invest free money.

    My philosophy is to invest — at minimum — half of your age as a percentage 401K contribution. If you are 25, invest 12.5 and when you get to 40, bump it up to 20% minimum.

    As you get older, you make more with experience. So, overall, by bumping your contribution, you are saving at a much faster rate.
    Shilpan recently posted..Three Easy Ways to Make Money in Any MarketMy Profile

    • MMD says

      I like that philosophy Shilpan. Though I prefer to start saving up as much as possible as soon as possible. You do tend to make more when you’re younger, but you also tend to have more responsibilities and bills.

  7. says

    Thank for the vital information you have shared here about 401k matching contribution. Usually, it is the 50% of the vested amount for most of the cases.


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