How to Know If Your Employer’s 401 (K) Is Really Good
Considering we’re in the Great Retirement period, when 50% of employees are looking for new jobs, employers are struggling to retain talent through perks such as bonuses, pay increases, and 401 (k) plans. But 401 (k) plans differ depending on whether employers will match your contributions and to what extent. This leads to the obvious question: What does an above-average plan look like in general?
Most companies offering 401 (k) s will match your contributions
An XpertHR survey shows that of employers offering a 401 (k) plan, 82% offer a premium. This may be the most important aspect of 401 (k) s when buying benefits, as your employer basically offers you free money to invest in retirement. Since interest is added to that money over time, the difference in what you earn with recruiting can be dramatic. As MoneyRates explains :
Consider two employees: Jane and Jack. Each earns $ 50,000 and contributes 6% of that amount annually to their company’s 401 (k) plan. They each receive the same return on investment of 5% per year. However, Jane’s employer has a 50% match and Jack does not.
After 20 years, Jane would have accumulated $ 152,517 in her 401 (k) plan, and Jack’s balance would have been $ 50,839 less at $ 101,678.
Remember, they both contributed the same annual amount and received the same return on investment, but the coincidence of employers had a significant impact on their retirement savings .
Of course, employer reconciliation plans can vary depending on how they are paid – many will match a certain percentage of your total income, or a set percentage of an employee’s contribution (e.g. 50% for every dollar you add), or they might deposit a fixed dollar amount annually instead of a percentage of your earnings. According to the survey, most plans (71%) offer 100% match up to at least 1% of your total pay. Either way, recruiting employers is always good , and you should look for a plan that allows you to maximize the amount they are willing to pay (it’s worth mentioning here that the 2021 contribution cap is $ 19,500, although for workers over 50 years). , it’s only $ 26,000).
While most companies match contributions, it doesn’t always happen right away
Another consideration when considering a job offer is how quickly employer matching actually takes effect with a given 401 (k) plan, as many employers delay matching for up to six years (the IRS requires gradual plans to be fully implemented by that time. comparisons). As the survey shows, almost a third of employers immediately offer recruiting:
- Don’t wait (28%)
- Up to one year (13%),
- up to two years (7%),
- up to three years (14%),
- up to four years (6%),
- up to five years (17%),
- up to six years (10%)
- (The remaining 5% found it difficult to answer).
All of this means that an above-average 401 (k) plan will offer full employer match (up to at least 1% of your paycheck), and that employer match will take effect immediately.
Bottom line
Understandably, people tend to focus on pay when considering job offers – after all, there are bills to be paid. But the benefits matter too. For example: An employer might not offer a high salary, but they may also offer a great 401 (k) plan that can offset or even exceed long-term earnings when compared to an employer who, say, offers a higher salary without an employee. conformity.
When choosing a potential employer, you’ll want to compare the numbers for both pay and benefits, but as a guideline, you can start with any 401 (k) job offer that has immediate recruiting.