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  • Writer's pictureWealth Legion

Employer Match

An employer match is a contribution that an employer makes to an employee's retirement savings plan, typically a 401(k) or similar retirement account. The employer agrees to match a certain percentage of the employee's contributions, up to a specified limit.

Let's illustrate this with the stories of Alexander and Olivia:

Alexander: Alexander works for a company that offers a 401(k) retirement plan with an employer match. The company's policy is to match 50% of an employee's contributions, up to 6% of the employee's salary. Alexander earns $50,000 per year and decides to contribute 6% of his salary to his 401(k), which amounts to $3,000 per year.

Since Alexander contributes $3,000 per year, his employer will match 50% of this amount, which is $1,500. Therefore, the total contribution to Alexander's 401(k) from both himself and his employer will be $4,500 ($3,000 from Alexander and $1,500 from the employer).

Olivia: Olivia also works for a company with a 401(k) plan that offers an employer match. However, her company's policy is slightly different. They match 100% of an employee's contributions, but only up to 4% of the employee's salary. Olivia earns $60,000 per year and decides to contribute 4% of her salary to her 401(k), which amounts to $2,400 per year. Since Olivia contributes $2,400 per year, her employer will match this entire amount, which is also $2,400. Therefore, the total contribution to Olivia's 401(k) from both herself and her employer will be $4,800 ($2,400 from Olivia and $2,400 from the employer).

In both cases, the employer match provides an incentive for employees like Alexander and Olivia to save for retirement by effectively doubling their contributions, up to a certain limit. This is a valuable benefit that can significantly boost an employee's retirement savings over time.

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