Don't Forget About 401(k) Matching on the Job Search
Hunting for a new position can be overwhelming. There's a lot to think about: job title, salary, opportunity for promotion, workplace culture and more.
It's easy to let one of the most important considerations slip through the cracks: the availability of 401(k) matching and other financial benefits.
Remember, compensation for your work goes far beyond the salary you earn. It includes benefits you can leverage to make the most of your personal finances, including insurance policies, reimbursements and, perhaps most importantly, access to good retirement plans with an employer match.
Here's what you need to know about 401(k) matching – and what to look for before accepting a new job.
Take Advantage of Retirement Accounts Available to You
Some companies offer retirement plans that employees can access. An employer may offer any of these accounts:
- Roth 401(k)
- SIMPLE IRA
- SEP IRA
These accounts are specifically designed to help you save money for the future. The money you put into your 401(k) plan, for example, is tax-exempt in the year you contribute. You only pay taxes when you withdraw the money in retirement.
And these accounts come with guidelines designed to dissuade you from withdrawing the funds you save before you retire, like IRS penalties. This is a good thing for most savers, as it reduces the temptation to use funds for other purposes.
How 401(k) Matching Works (and Why It Matters)
When you work with the right company, you won't have to do all that saving on your own. If your new employer offers a 401(k) matching program, they'll match a certain percentage of what you contribute to your account.
Say a company offers employees a 401(k) plan with a 3 percent match. This means that if you contribute an amount equal to 3 percent or less of your salary to your 401(k), your employer will match that amount. So if you make $50,000 and contribute 3 percent, or $1,500, to your 401(k) throughout the year, your employer will also contribute $1,500 – which doubles your savings.
This is why it's critical to consider retirement plans as part of a comprehensive benefits package when looking for a new job. A 401(k) match is like free money – or at least, extra money in addition to your salary that makes it easier for you to save for your future.
Just make sure you understand the company's vesting schedule. If you leave an employer, you may only be entitled to take a percentage of what the company contributed to your retirement plan with you. In some cases, you won't be able to take any at all. Generally, the longer you stay with a company the more matched money will follow you to your next gig.
Don't Leave Free Money on the Table
Factor in any available 401(k) matching into the total value of your compensation when considering a job offer. If you receive two offers for comparable positions from similar companies but only one offers an employer match, you may want to go with the job that will help you develop long-term wealth through increased savings.
Even positions that pay a little less today but offer 401(k) matching can help you earn more over a period of 10 or 20 years. That's thanks to the power of compound interest. When you contribute to your 401(k), you invest your money and give it a chance to earn interest – and then that interest can earn interest. The result can be an exponential growth in your savings over time.
Be proactive once you start a new job with a 401(k) match. Sign up for the plan right away, and contribute enough to get the match. Then, revisit your plan every year. Even if you bump up your contributions by just 1 percent each time, that can add up to massive savings over the lifetime of your career.