401(k) Basics: Don’t Leave the Match on the Table

Disclaimer: This article is for education and entertainment only. It isn’t financial, legal, or tax advice. Plans differ—always check your own documents and make choices that fit your situation.

What a 401(k) actually is

A 401(k) is an employer-sponsored retirement plan that lets you invest with tax advantages:

• Traditional 401(k): contributions are pre-tax now; withdrawals are taxed later.
• Roth 401(k): contributions are after-tax now; qualified withdrawals are tax-free later.
• Many plans let you split contributions between Traditional and Roth.

Why it matters

• Tax treatment can improve your after-tax outcome versus a regular brokerage account.
• Payroll automation makes saving happen on autopilot.
• Employer match = potential free money (details below).

The employer match (the easiest win)

Lots of companies match a portion of what you contribute. Common formats:

• “50% of the first 6%” → contribute 6% of pay, the company adds 3%.
• “100% of the first 4%” → contribute 4%, company adds 4%.

Quick example: Salary $60,000 and a “50% of the first 6%” match.
Your 6% = $3,600 for the year and the employer adds $1,800. If you only contribute 3%, you get just half the match.

Vesting: Some plans make you “earn” the match over time (e.g., 25% per year). If you leave early, you may forfeit the unvested portion. Find your vesting schedule in the plan documents.

Compounding: why starting earlier helps

Contributions and match can compound for decades. You don’t need perfect timing; you need time in. Even small, consistent contributions can grow meaningfully because:

• contributions happen every paycheck,
• investment returns (when they occur) can build on prior returns, and
• tax treatment can reduce drag compared with a taxable account.

No one can promise returns. The point is the process: contribute regularly, capture the match, keep fees low, and let time work.

How much to contribute (match first, then more if possible)

A common order of operations (not advice, just a simple framework):

1. Contribute enough to get the full match. It’s hard to beat a 50% or 100% immediate boost.
2. Consider your tax mix. Traditional reduces taxable income now; Roth pays tax now for potentially tax-free withdrawals later. Some people split contributions to diversify future tax exposure.
3. Increase by 1% each year (or when you get a raise) until you reach your target savings rate. Many plans let you set auto-increase.

Note on limits: The IRS sets annual contribution limits (employee contributions + overall plan totals). These change over time—check your plan page for the current numbers.

Picking investments (keep it simple with indexes)

Most 401(k)s offer a menu. You only need a few broad, low-cost building blocks:

• S&P 500 index fund
  Tracks ~500 large U.S. companies. Broad, simple core for many investors.
• Total U.S. stock market index fund
  Covers large + mid + small caps (even broader than S&P 500).
• Nasdaq 100 index fund
  Heavier in tech/communications; growth-tilted and more volatile. Consider as a satellite position rather than a core for many people.
• International stock index fund
  Adds companies outside the U.S. (developed/emerging). Diversifies country/sector exposure.
• U.S. bond index fund
  Adds stability, income, and helps manage overall portfolio swings—especially as time horizon shortens.
• Target-date fund (TDF)
  One-and-done option that automatically shifts stocks/bonds as you approach a year (e.g., “Target 2055”). Check the expense ratio and glidepath to be sure you like it.

Fees matter: Lower expense ratios mean more of your returns stay with you. If your plan lists several similar options, the cheaper broad index fund is often the workhorse.

Traditional vs. Roth (quick decision framework)

• If you prefer lower taxes today (higher current tax bracket, cash-flow tight), you might lean Traditional.
• If you prefer tax-free withdrawals later (expect higher taxes later, or you value tax diversification), you might lean Roth.
• Many people split contributions for flexibility. Again—this is a tradeoff, not a rule.

What to check on your plan page (10-minute audit)

• Match formula & frequency: Do they match per-paycheck or annually? (Per-paycheck favors steady contributions.)
• Vesting schedule: When is the match fully yours?
• Expense ratios: List your funds and note fees.
• Default fund: If you never chose investments, what is the default? (Often a TDF.)
• Auto-increase: Can you bump contributions 1% each year?
• Roth option: Does your plan support Roth 401(k)?
• Brokerage window (if any): Optional access to more funds—use with care; costs may be higher.

Common myths (and why they’re misleading)

• “I’ll start later when I earn more.” You’ll never get back today’s compounding time.
• “I need the perfect fund to begin.” Starting with a broad, low-cost index is usually enough to get going. You can refine later.
• “I’ll time the market.” Even pros struggle. A steady, automated contribution schedule is the quiet hero.

Key takeaways

• Capture the full employer match—it’s hard to beat.
• Use simple index funds as your core, watch fees, and add satellites only if you understand the tradeoffs.
• Choose Traditional vs. Roth based on your tax preferences and plan options.
• Let time and automation do the heavy lifting.

Again: this is general information, not advice. Your plan, taxes, and comfort with risk matter.

Fin’s quick-start checklist (copy/paste)

1. Log in to your 401(k) portal → find the match formula and vesting.
2. Set contribution to at least the full match.
3. Pick a low-cost index fund (or a target-date fund you’re comfortable with).
4. Turn on auto-increase by 1% per year.
5. Calendar a 15-minute review each year (fees, allocations, contribution rate).