If you’re making ends meet, have stashed away money in case of emergencies and have funds left over to put toward your financial goals, such as saving for retirement and tackling debt, congrats! Now you get to decide which goal to prioritize.
Conventional wisdom suggests that your first move is investing enough in your workplace retirement account to receive any matching contribution available. “It truly is free money,” Kevin Brady, a certified financial planner and vice president at Wealthspire Advisors in New York City, told CNBC Make It.
But depending on how long you’ve worked for your employer, it may not be your money. Not yet anyway.
That’s because your employer’s contributions to your account come with a vesting schedule, which means if you leave the firm before working a certain number of years, you may not be able to take some or all of the matching money with you.
If this is news to you, you’re not alone. While companies may be quick to advertise their generous 401(k) matching program, the not-so-generous caveats stipulating when you’re actually entitled to the money can be harder to find, says Catherine Valega, a CFP with Green Bee Advisory in Winchester, Massachusetts.
“Our industry is broken. We make things way too difficult for the mere mortal to understand,” says. “As an employee, you need to understand that there is something called a summary plan description, but no one knows that.”
Here’s what she and other financial pros say you should know about your 401(k) match.
How a 401(k) match works
First, a quick reminder of how 401(k) matches work and why financial planners love them so much.
If your company offers a 401(k), they may contribute to workers’ accounts as an added benefit and a way to incentivize participation in the plan. Companies may offer a blanket contribution to all employee plans or match up to a certain dollar amount, but most commonly, they agree to match an employee’s contributions up to a certain percentage of their salary.
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