The real questions are, what is free money? How do matching programs work? How do you find out if your company offers a matching program and do you know the constraints around the issue? How do you find out if this is a benefit you can tap into?
Let me start with why matching programs are often referred to as free money. When you make a contribution to your own future savings, that the company matches, the money they give you can be considered FREE!
Every company’s program is a little different, so you need to find out the nuances of your particular company.
Let me show you how it works: if you earn $50,000 and your company will match 3% of your salary, then if you contribute in $1,500 to your matched account, and your company would also match with $1,500.
On top of being called FREE, it is sometimes referred to as one hundred percent return on investment!
The more common matching programs are for the matching of retirement fund contributions. Basically the company wants to incentivize you to put money in your retirement fund. They usually allow you to put a percentage of your salary, 1% or 2% or 3% (usually in that range) into your retirement fund and they will often match that portion.
Some companies will have a vesting period. This is how long the portion of money that the company has contributed, remains locked until you can access the funds. Some companies will have a one-time fixed vesting schedule that states that once you’ve been with the company for given amount of time then you can take your money.
Sometimes companies actually have a rolling vesting schedule so for example, if a company has a two year rolling vesting schedule, they will match this year’s contribution and you will be able to take out the company’s contribution after 2 years. But the next year’s matched money, you will have to wait another 2 years from the company’s matched date, before you can access their contribution.
The portion of money that you have invested yourself, can be taken out any time unless you locked it into an investment of your choice.
Depending on the company’s program sometime you can actually contribute
pre-tax, which means you’ll have more money in your account from the day of contribution. If you put money into your retirement fund after you paid taxes, it could be a tax offset and allow you to get some money back through a tax refund.
You’d actually be surprised to know that a lot of medium-sized companies and most large sized companies have this matching benefit available. When you start a new job I would suggest, going to your HR department and speak to someone who is familiar with the benefits.
Some companies have a 1-800 number where you can get your questions answered. Ask as many questions as you can. There’s nothing wrong with saying that you are new to a company and don’t know how it works.
One of the reasons that people might be reluctant to participate in the matching program is that they were not planning to be with the company very long. Well one can never be sure exactly how long you will be with a company and you don’t want to miss out on all that free money along the way.
The important thing to remember is that you’ll be getting free money and you
don’t even have to think about it, as it will come directly from your paycheck…you won’t even miss it! This money will begin to accumulate faster than you’ll realize.
If you’re not enrolled, I recommend that you go ahead and do it. I know those forms are filled with jargon but with a little bit of persistence, you’ll find it totally worthwhile. So take advantage of the matching program and you can start to get free money.