Frequently asked questions
Is the employer match really free money?
Yes, once it vests, and it is the highest guaranteed return available to most people. An employer that matches 50% of what you put in has handed you a 50% return before the market does anything. Contributing less than the amount needed for the full match is the most expensive common mistake in a 401(k).
What is vesting and can I lose the match?
Vesting is the schedule on which employer contributions become yours to keep. Your own contributions are always yours. Employer money may vest on a cliff (nothing, then all of it on a set date) or on a graded schedule (a rising share each year). Leave before you are fully vested and you forfeit the unvested part, so check the date before you give notice.
Should I take a pension as a lump sum or a monthly payment?
Compare the present value of the monthly payments against the lump sum offered, which is what the pension calculator does. The monthly payment is longevity insurance you cannot outlive; the lump sum is control and inheritability. Health, whether the pension has a cost-of-living adjustment, and whether a survivor benefit is included usually decide it.
What happens to my pension if the company fails?
Most private-sector defined benefit pensions are insured by the Pension Benefit Guaranty Corporation, a federal agency, which pays benefits up to a legal maximum if a plan terminates without enough money. The guarantee has limits, so a high earner can receive less than the plan promised. Government and church plans are generally not covered.
Can I leave my 401(k) with an old employer?
Usually, if the balance is above a small threshold. You can also roll it into the new employer's plan or into an IRA. Compare the fees and the fund menu before moving it. A rollover between pre-tax accounts is not a taxable event, but cashing it out is, with a penalty if you are under 55 or 59 and a half depending on the circumstances.
Does the employer match count against my contribution limit?
Not against the employee deferral limit, which covers only what you put in. A separate and much higher combined limit covers everything that goes into the account in a year. Almost nobody reaches it on a match alone. Check the current year's figures on IRS.gov.