The 401k match, free money and 100% return!

The 401k match, free money and 100% return!

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Have you ever read your benefits package? It’s kind of fun. You see all sorts of cool things that most people never take advantage of. My favorite? The 401k match.

Free money for you!

Do you know what your 401k match is? If not, you need to find out. It’s an AMAZING way to get a 100 percent return, or at the very least free money.

You can ask your Human Resources department for your benefits. In large firms, there is a dedicated benefits team so you might get bounced around to them. There might also be an internal website you can access at work.

At my old firm, they offered a 100% match up to 6%, and then paid out a discretionary 6% to everyone in the firm at the end of the year. I would later learn they did it this way because they had to pay everyone the 6% in discretionary amounts for legal reasons. But, free money! All you need to do is contribute up to the max! So, 200% return a year return I guess? It was incredible. You’d be amazed at how some people didn’t participate. 

Now, is it really free money if you get a match and then the market dips? Yes, it’s still free money, you just need to wait for the market to go back up.

The fun math part for the 401k match

So, what does this mean? Let’s say you make $50,000 a year. If you are paid bi-weekly (26 paychecks), you can contribute $115.38 per pay period and your firm will contribute the same amount, bringing your total to $230.77.

Now, be careful with your firm. The maximum contribution you can contribute to your 401k is $18,000 (unless you are self-employed, but that’s a different article). If you are over 50, you can contribute an extra $6,000, for a total of $24,000. A lot of firms match UP TO 6% for each pay period, so don’t think that you can just front load your 401k at the beginning of the year and get the full match.

Now, you should also check your 401k Expense Ratio and pick what kind of funds you want to invest in. If it’s too high, you’ll end up losing hundreds of thousands of dollars to fees. When you move jobs, be sure to think about if you want to roll over your 401k or not. Will the fees outweigh the tax implications? Do the spreadsheet math.

If you are extra enterprising, you can attempt to get paid every day instead of just bi-weekly and thus contribute to your 401k daily. After all, why should you wait so long to get paid for work you do today?

Make sure your firm allows you to front-load your contribution – otherwise you miss the match

A real life example is a friend who didn’t contribute to her 401k because she wasn’t sure if she could get a permanent visa. She had a student visa at the time and since the permanent (H1B) visa was a lottery system, she wouldn’t know for a few months. She didn’t want to contribute to it if she had to leave the country, so she put it off for around 1.5 years. When she finally got her visa, she decided to contribute her entire paycheck to get the match as it was October and the match period ended in December.

She messaged me saying that she got a much smaller percentage match than what the benefits package said. She mentioned the dollar amount and I realized it was the same amount taken out from my paycheck bi-weekly. We realized that the match was dependent on each pay period, and that paying more than 6% would cause you not to get a 100% match.

Upon further discovery, we found out you could have TWO 401ks. One in which you are not the owner of the company (your corporate firm). The other one in which you were the owner of the company (side-hustle). So, my friend and I decided to get in the side-hustling business to contribute up to $54k per year in extra 401k contributions.

The 401k waiting period

A lot of companies will not provide an employee match until they have been at the job for a few months. At my prior firm, it took 6 months for me to be able to get 401k matches, but I was eligible to contribute to my 401k right away. By law, the eligibility date to contribute to a 401k (if your company has one) is one year.

You also need to make sure that you know the vesting schedule, if there is one. It might say something like: 50% vested at 2 years, 75% vested at 3 years, and 100% vested at 4 years. What does this mean? It means that if you leave the firm at 2 years, you’ll only get to keep 50% of the 401k match. You will not get to keep the returns of the 50% 401k match that has not yet vested.  Don’t let this stop you from trying to get a job elsewhere if your company isn’t paying you market rate!

Now, when you go job hunting, how do you find out what the benefits are of the job? Asking what the 401k match is a bit awkward in an interview, so what do you do? I tend to go on glassdoor, which is a company that aggregates data about companies, from reviews and salaries, to benefits packages.

Let me know what kinds of 401k matches and vesting schedules you guys have had! Are you now going to try for the full match or have it?


Author: Olivia

Olivia worked in finance and wants you to learn the secrets of financial independence. She believes there are so many ways to monetize your life and make money doing the things you're already doing because so many companies offer free money.

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2 thoughts on “The 401k match, free money and 100% return!

  1. Great point about front loading. I almost decided to do this at my job, but then our company switched to putting in their match with each pay period as opposed to once a year. It somehow dawned on me that I’d be missing out on the match if I didn’t contribute for all those pay periods.

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