Why the Employer Match Is "Free Money"
An employer match — commonly 50 cents to a full dollar for every dollar contributed, up to a percentage of salary — is compensation that only gets paid if the employee contributes enough to claim it. Contributing less than the amount needed to capture the full match effectively leaves part of the compensation package unclaimed, which is why financial advisors near-universally recommend contributing at least up to the match threshold before directing savings elsewhere.
2026 Contribution Limits
The IRS sets an annual limit on how much an employee can personally contribute to a 401(k) — a figure that's adjusted periodically for inflation. Employer contributions don't count against this individual limit, though a separate, higher combined limit applies to total contributions from both employee and employer.
Traditional vs. Roth 401(k)
A traditional 401(k) is funded with pre-tax dollars, lowering taxable income now, with withdrawals taxed in retirement. A Roth 401(k) is funded with after-tax dollars, so qualified withdrawals in retirement are tax-free. The better choice generally depends on whether an individual expects to be in a higher or lower tax bracket in retirement than they are now — younger workers early in their careers often lean Roth, since their current tax rate is likely lower than their eventual one.
Vesting Schedules
While an employee's own contributions are always 100% theirs, employer matching contributions are often subject to a vesting schedule — meaning the employee only fully owns the match after a certain number of years with the company. Leaving a job before being fully vested can mean forfeiting part of the employer match already credited to the account.