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It is common wisdom that if you receive matching contributions from your employer, you should take it. However, many people need help understanding matching and contributions. Others still, don’t realize that they may be unable to keep that money unless it vests. So, let’s take a dive into 401K matching, contributions, and vesting. Note: For the purpose of this article, you can consider 401K and 403Bs synonymous.
When you are offered a match inside of your 401K this means that for every dollar you put into your 401K, your employer will also place (i.e. match) that dollar. Said differently, this is a 100% return on your money. This explains why even if you have 20% credit card debt (i.e. a financial emergency), taking part in a 100% match makes sense. You put $1 into the 401K, and they put $1 into the account, too.
Nowhere else in the world of personal finance do you receive an immediate doubling of your money. Because this deal is so good, there is an upper limit on the match.
For example, let’s say that you make $200,000 annually and your employer offers a 4% match. This means that they will match the first $8,000 that you place into your 401K. After that, you may still contribute up to the annual maximum set by the IRS, however, you will no longer receive a match once you place the $8,001 into the account.
Note: Your employer match and contributions do not count toward your employee 401K contribution limit. For the year 2023, the annual limit on the employee side is $22,500. The employer may match/contribute additional money up to a maximum of $66,000 in 2023. This means that you can place a maximum of $22,500 and your employer can contribute an additional $43,500.
The short answer to this question is “yes and no”.
Your employer may contribute matching and/or non-matching money to your retirement account. In other words, all matching money is a contribution, but not all contributions are matching contributions. For example, using the same example as above, your employer may say, “We will match the first 4% of your contributions in your 401K and provide a $5,000 contribution in addition to any matching money we provide.”
This non-matching money would then count toward the employer matching/contribution side of the equation and, again, would not count against your own personal contribution maximum.
The term vesting refers to when and how you take ownership over any matching and non-matching money provided by your employer. Until you meet the vesting requirement, this means that any money you have been provided is not technically yours. Upon vesting, you can consider this money that you get to keep.
This is important to note. Your contract may say, for example, that you have a three-year vesting period on any 401K matching/contributions. So, if you leave your job the day before your money was set to vest, you would forfeit some or all of your 401K matching/contributions.
This underlies the importance of checking into whether your institution has a vesting schedule for any money they provide. This is particularly true for physicians-in-training. Though a match is rare in training, it would benefit you to know if your training period is shorter than the vesting period for your institution and plan accordingly.
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When you are offered a match inside of your 401K this means that for every dollar you put into your 401K, your employer will also place (i.e. match) that dollar. Said differently, this is a 100% return on your money. This explains why even if you have 20% credit card debt (i.e. a financial emergency), taking part in a 100% match makes sense. You put $1 into the 401K, and they put $1 into the account, too.
Nowhere else in the world of personal finance do you receive an immediate doubling of your money. Because this deal is so good, there is an upper limit on the match.
For example, let’s say that you make $200,000 annually and your employer offers a 4% match. This means that they will match the first $8,000 that you place into your 401K. After that, you may still contribute up to the annual maximum set by the IRS, however, you will no longer receive a match once you place the $8,001 into the account.
Note: Your employer match and contributions do not count toward your employee 401K contribution limit. For the year 2023, the annual limit on the employee side is $22,500. The employer may match/contribute additional money up to a maximum of $66,000 in 2023. This means that you can place a maximum of $22,500 and your employer can contribute an additional $43,500.
The short answer to this question is “yes and no”.
Your employer may contribute matching and/or non-matching money to your retirement account. In other words, all matching money is a contribution, but not all contributions are matching contributions. For example, using the same example as above, your employer may say, “We will match the first 4% of your contributions in your 401K and provide a $5,000 contribution in addition to any matching money we provide.”
This non-matching money would then count toward the employer matching/contribution side of the equation and, again, would not count against your own personal contribution maximum.
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The term vesting refers to when and how you take ownership over any matching and non-matching money provided by your employer. Until you meet the vesting requirement, this means that any money you have been provided is not technically yours. Upon vesting, you can consider this money that you get to keep.
This is important to note. Your contract may say, for example, that you have a three-year vesting period on any 401K matching/contributions. So, if you leave your job the day before your money was set to vest, you would forfeit some or all of your 401K matching/contributions.
This underlies the importance of checking into whether your institution has a vesting schedule for any money they provide. This is particularly true for physicians-in-training. Though a match is rare in training, it would benefit you to know if your training period is shorter than the vesting period for your institution and plan accordingly.
When you are offered a match inside of your 401K this means that for every dollar you put into your 401K, your employer will also place (i.e. match) that dollar. Said differently, this is a 100% return on your money. This explains why even if you have 20% credit card debt (i.e. a financial emergency), taking part in a 100% match makes sense. You put $1 into the 401K, and they put $1 into the account, too.
Nowhere else in the world of personal finance do you receive an immediate doubling of your money. Because this deal is so good, there is an upper limit on the match.
For example, let’s say that you make $200,000 annually and your employer offers a 4% match. This means that they will match the first $8,000 that you place into your 401K. After that, you may still contribute up to the annual maximum set by the IRS, however, you will no longer receive a match once you place the $8,001 into the account.
Note: Your employer match and contributions do not count toward your employee 401K contribution limit. For the year 2023, the annual limit on the employee side is $22,500. The employer may match/contribute additional money up to a maximum of $66,000 in 2023. This means that you can place a maximum of $22,500 and your employer can contribute an additional $43,500.
The short answer to this question is “yes and no”.
Your employer may contribute matching and/or non-matching money to your retirement account. In other words, all matching money is a contribution, but not all contributions are matching contributions. For example, using the same example as above, your employer may say, “We will match the first 4% of your contributions in your 401K and provide a $5,000 contribution in addition to any matching money we provide.”
This non-matching money would then count toward the employer matching/contribution side of the equation and, again, would not count against your own personal contribution maximum.
The term vesting refers to when and how you take ownership over any matching and non-matching money provided by your employer. Until you meet the vesting requirement, this means that any money you have been provided is not technically yours. Upon vesting, you can consider this money that you get to keep.
This is important to note. Your contract may say, for example, that you have a three-year vesting period on any 401K matching/contributions. So, if you leave your job the day before your money was set to vest, you would forfeit some or all of your 401K matching/contributions.
This underlies the importance of checking into whether your institution has a vesting schedule for any money they provide. This is particularly true for physicians-in-training. Though a match is rare in training, it would benefit you to know if your training period is shorter than the vesting period for your institution and plan accordingly.
Checklist on 401K/403B Matching
If you are offered a 401K/403B by your employer it is important to know:
1. Are matching contributions provided by your employer?
2. Are there any non-matching contributions?
3. What are the vesting requirements for employer contributions? If you are in training, will you be able to vest?
If all of the above checks out and you know you are likely to vest, participating in your 401K or 403B to at least the level that would allow you to receive your employer’s contributions is recommended. Otherwise, you are leaving part of your salary on the table.
Dr. Jimmy Turner is the Chief Medical Officer of Attend, as well as the Author of the Physician Philosopher’s Guide to Personal Finance, Founder of The Physician Philosopher and the Host of Money Meets Medicine podcast.
