As an employee for a company, one of the potential benefits offered is a retirement plan. A retirement plan provides the opportunity to save for retirement, while also offering tax advantages. Many retirement benefit plans extend further and offer a perk called matching contributions.

What are matching contributions?

Matching contributions are when an employer adds money to your retirement account based off your personal contributions.

For example, if you contribute $5,000 to your retirement plan and your employer has a 100% matching contribution that means they will add an additional $5,000 to your retirement account. Your $5,000 plus your employer’s $5,000 equals $10,000 total in retirement savings.

This is a very simplified scenario – most employers do not match 100% of contributions. Instead, they set rules on eligibility and contribution amounts.

More to know

There may be further restrictions around employer matching contributions, including when the money actually belongs to you. Some employers add a timeline for ownership and “release” a certain percentage of assets each year. This adds an incentive for the employee to continue working at the company for an extended time period.

Furthermore, there are laws and restrictions around various retirement accounts, so it is important to understand the rules for a specific plan.

Long story short

Collecting matching dollars boosts retirement savings by increasing the pace and efficiency of asset accumulation. By simply setting aside money for retirement, an employee in turn receives more money from the employer.

Take care to allocate the minimum amount required to receive your FULL matching contribution. Always ask about your employer’s policy to ensure you are taking complete advantage of the benefit. When it comes to matching programs, language can be vague and difficult to understand, so ask questions. Contacting your Human Resources department is usually the best place to start.