78% of 401(k) Savers Made This Smart Move in 2023

There are certain benefits to saving for retirement in a 401(k) over a tax-advantaged account you open yourself with a brokerage firm. For one thing, 401(k)s have much higher contribution limits. So if you’re able to max out, you can shield more income from taxes with a 401(k) than with an IRA, assuming you’re saving in a traditional retirement account and not a Roth IRA.

Another nice thing about 401(k)s is that many of the companies that offer these plans also sponsor worker contributions to some degree. So if you put in money from your own paycheck, you could get free money for your retirement in return.

Recent data from Fidelity finds that as of the end of 2023, 78% of 401(k) plan participants were contributing enough money from their own paychecks to snag their full employer match. And that’s something you should try to do, too.

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A single match could go a long way

There are no rules when it comes to employer matches for 401(k)s. It’s at your company’s discretion to decide how much of a match it wants to offer. But you should know that claiming your employer match in full could really do a world of good for your savings in the long run.

The reason? When you snag an employer match, you don’t just get a few thousand dollars in your 401(k). You also get the opportunity to invest that few thousand dollars. And that’s where the potential to grow your balance nicely really exists.

Let’s say you have your 401(k) heavily invested in stocks. To be clear, 401(k)s typically don’t allow you to buy stocks individually, but you can choose index funds or mutual funds with a stock-focused strategy.

Over the past 50 years, the stock market has returned an average of 10%, as measured by the S&P 500 index. So let’s say your employer will match up to $2,500 in employee contributions, and you put in enough this year to get that match in full. Let’s also assume your 401(k) is invested in S&P 500 index funds that provide a 10% return. In 35 years, your company’s $2,500 match will be worth over $70,000.

Of course, to get that $2,500 from your employer, you need to put in $2,500 yourself. But that $5,000 in contributions this year could be worth about $140,500 in 35 years if you’re able to score a 10% return on your investments. Considering that the average 401(k) balance was $118,600 at the end of 2023, that’s a nice result to attain from just a single year’s contribution.

Don’t give up free money

It’s not every day that you’re offered an opportunity to get your hands on free money. So if your company has a 401(k) match you can snag, try to do so.

You may need to make a few lifestyle changes to free up money for your 401(k). That could mean taking a more low-key vacation instead of splurging on a high-end resort, or paying for fewer extras during the year, like takeout meals and non-work apparel. But as you can see, snagging your employer match could lead to a more robust nest egg over time. So it really is worth making some reasonable sacrifices.

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