Should You Invest in a 401k with No Matching?

Laura explains how 401k employer matching works and answers a listener question about what to do when your company doesn't match your retirement contributions. Find out if it still makes sense to invest in a 401k with no matching funds to boost your account.

Laura Adams, MBA
9-minute read
Episode #460

Having the opportunity to invest in a 401k retirement plan is a valuable benefit that's only offered by employers. However, companies aren’t required to match employees’ retirement contributions, so many don’t.

If that’s the case with your plan you may be wondering if it still makes sense to invest in a 401k with no matching.

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That’s exactly what Laneika wants to know. Her email said, “Three years ago I quit my job and used my 401k money to survive. Now I have a great job with a 401k—but my company doesn’t match my contributions. What options do I have?

In this show I’ll explain how matching works and answer Laneika’s question so you invest the right way and have plenty of security when you’re ready to kick back and enjoy retirement.

Free Resource: Retirement Account Comparison Chart (PDF download)—get the rules for the most popular retirement accounts

What Is Employer Matching on a 401k Retirement Plan?

First, I'll explain how 401k matching works and helps to boost your account value. It’s free money that comes with certain rules that may vary from company to company.

In some cases, you get matching funds at work even if you don’t invest in a 401k. For instance, your employer might contribute 3% of your salary each year no matter if you contribute to the plan or not.

Most 401ks require you to meet a specific saving goal before matching funds kick in. A popular benefit is to match 50% up to 6% of your pay. For example, if you make $100,000 and contribute 6% or $6,000, your company would match 50%, or $3,000, giving you a total of $9,000 in contributions. Contributing at least 6% of your salary, in this example, maximizes the amount your company is willing to match.

If you contribute less than 6% of your income, you miss potential compensation. For instance, if you make $100,000 and contribute 4%, or $4,000, your match would be 50% or $2,000—leaving $1,000 on the table. 

Other terms you might see are to match 100% of what you contribute, up to 3% of your income. Or a really generous match would be 100% of your contributions up to 6% of your pay.

Not meeting the savings goal means you’re missing out on a lot of free money going into your retirement account. That’s a big incentive to contribute at least enough to max out your plan’s match!

But you don’t always own matching funds right away because they can be tied to a vesting schedule. For instance, you might have to be employed for 3 years until you own them. Or you might receive 20% each year over a 5-year period.

However, no matter how long you stay with an employer, you’re always 100% vested in the contributions that you make to a workplace retirement account.

See also: 401k or IRA: Which One Should You Invest in First?


About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura's previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.