Employer match.

In plain English

An employer match is additional money your company contributes to your 401(k) on top of what you put in. The most common structure is a percentage match up to a percentage of pay: '100% match on the first 3% of pay, then 50% on the next 2%' is a typical formula. To get the full match, you must contribute at least the amount the match formula is calculated against (in that example, at least 5% of pay). Match dollars are usually subject to a vesting schedule, meaning leaving the employer too soon forfeits some or all of them.

01Why it matters

The employer match is the closest thing most workers will ever get to free money. A 100% match on 3% of pay is an immediate 100% return on that portion of contributions, before any market return. Not contributing enough to capture the full match is one of the more common avoidable financial mistakes; over a career it can compound to six figures of lost wealth. Contributing at least the match-trigger percentage is usually the first step before any other retirement saving.

02The math, step by step

Employee earns $60,000 with a '100% on first 3%, 50% on next 2%' match formula. Contributing 5% ($3,000) triggers the full match: employer adds 3% ($1,800) + 1% ($600) = $2,400. Total annual addition: $5,400, of which $2,400 came from the employer. Contributing only 2% ($1,200) would have captured only $1,200 of the match, leaving $1,200 of employer money on the table.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT