401(k) Employer Match (Free Money)

By Shane Barber

April 16, 2021

401(k) Employer Match (Free Money)

Key Points – 401(k) Employer Match:

  • How 401(k) contributions stack up
  • What the 401(k) employer match is
  • An example of two savers
  • 6 minute read

401(k) Employer Match

Taking Advice

Throughout the course of my working life, I have had no shortage of people willing to give me advice about how to succeed at whatever I was doing. 

It all started at the age of about 12, with me riding my bicycle 2.5 miles to the local nursery to water plants in the summer and fall afternoons. The nursery owner, a schoolmate and lifelong friend of my mother, was very specific in what I needed to do to make sure the plants got enough water, but not too much so that they always looked their best for potential buyers. 

She never did tell me not to eat the tomatoes off the tomato plants, though, and I love tomatoes, so you can guess how many tomato plants are left there with tomatoes on them. I think she considered it part of my weekly pay, and that was fine with 12-year-old me.  

I was fortunate to have people like her all along my path to an actual career in something. The advice was always wise for where I was at the time and always given with the goal of moving me along to my next stage in life. 

Work Experience

I worked as a t-ball, softball, and baseball umpire, as a grocery bagger and stocker, as a warehouseman in an auto parts store, as a warehouseman and delivery driver for an industrial distribution company, and as a vacuum cleaner salesman (I know! I know!) 

Looking back, as sleazy as the vacuum cleaner business owner was, and he was sleazy, he gave me an insider’s look at what a multilevel marketing organization looked like. 

That was a blessing in disguise that helped me avoid the multitude of people trying to get me to join “insert name here” multilevel marketing organization that would come my way as I got older. If you tell two people, and they tell two people, they tell two people, etc. 

Starting Anew

The advice finally became constructive for the real world when I left my home in Garden City, Kansas, and came to Kansas City in 1984 to start my first “real” job. I was still wet behind the ears, at the tender age of 19, and now in charge of my finances and future. It’s terrifying when I look back on it. 

Setting Up the 401(k)

Fortunately, the guy who would be my boss over the next almost 20 years and eventually become a personal friend sat me down on the day I was filling out my payroll and benefits information. He helped me with the basics and then told me about the new 401(k) the company was offering to employees. He looked me dead in the eyes and told me, in no uncertain terms.

“You need to start right now putting 10% of your pay into this plan! You’ll never miss it, and the company will put in another 5% for you on top of your 10%.” 

Then he said, “It’s called an employer match, Barber, and it’s free money!” He knew my father, so he never called me by my actual name. He just called me Barber. But his advice was 100% spot on. I didn’t miss the money that went into my 401(k) in spite of the fact that I was making exactly $4.62 an hour. 

It Stacks Up

Obviously, the contributions were minuscule to begin with, but they added up over time. And, by the time I was 30, just 11 years after starting the plan, I had way more money in there than I ever thought possible.

The 401(k) Employer Match

That is what I want to talk to you about today. The “free money” available to those of you who have a 401(k) or other qualified plan at work where your employer matches some portion of your contributions to the plan. 

If you’re not participating in it, you’re walking away from that free money. Like the small contributions I made to my 401(k) plan almost 40 years ago, the smallest matching contributions (free money) add up to big numbers over time.  

For some of you reading this, there’s no new news here. You’ve already done it and are either retired or approaching retirement. However, there may be some for your children or grandchildren who are early in their working careers and haven’t started contributing to any kind of retirement plan. 

If you haven’t given them the advice my boss gave me all those years ago, you may want to share this with them. 

Start Your 401(k) and Get Your Match Early 

Starting early is a huge advantage and can make all the difference in the world to them later in life. There are those among the younger generation who don’t “trust” their employer for whatever reason and choose to opt out and save their money outside of the company plan. They’re foregoing the “free money” that comes in the form of matching contributions. 

That distrust can cost them a lot of money throughout their working careers.

A Quick Example of Two Savers

To understand the impact, let’s take a look at two hypothetical individuals. Both are 30 years old, making $60,000 per year, both are getting the same 3% raises every year, and both are saving 10% of their gross pay. 

Both will get the exact same returns on their investments net of all fees and expenses, and both will retire at age 65. The only difference is, one is saving his money in an IRA and the other into a company plan with a match. 

There are many different calculators available online to figure out what a matching contribution can do for your retirement savings. For this illustration, I used the one available from

The Numbers

It’s interesting to see the progression of pay for our hypothetical savers. They start out making $60,000 a year at age 30, and by the time they reach retirement age 35 years later, they’re making $164,000 a year. 

My 30-year-old self would never have imagined that by the time I was 65, I would be earning 273% more than I was currently earning simply because of a 3% cost of living raise every year. But the numbers don’t lie.  

Another thing to keep in mind for this illustration is that I assumed that the contribution limits for IRAs continue to increase each year so that our hypothetical IRA saver is always able to make deductible contributions to his IRA of 10% of his earnings. 

I don’t think that’s unreasonable when you consider that the deductible contribution limit in 2001 was $2,000, and there was no catch-up provision for older savers. 

Today the limit is $6,000 with an additional $1,000 for those over 50. So the basic limit has tripled in 20 years, and it’s 3.5 times higher for those over 50.  

The Results
401k Employer Match_Results

In the figure above, notice how the employer match, throughout a 35-year career, added an additional $611,833 to our company-matched individual’s retirement savings versus our IRA saving individual. That’s a HUGE difference to enter retirement with.  

Spread the Word to Your Family – Education is Important

Like I said earlier, the numbers don’t lie. It’s also never too late to start. So, if you have not been participating in your company plan, start at the next available opportunity. 

If you know that your kids or grandkids have the option at their work and aren’t participating, encourage them to start immediately. Share these numbers with them if they are hesitant. It’s “free money” they are missing out on!  

“There’s no such thing as free money!”

I have been listening to some of you yelling at me through your computer screen the whole time you’ve been reading this “There’s no such thing as free money, Barber!”  

For the record, I know there’s no such thing as free money. The employer match to the 401(k) is part of the business’s cost of employment. And they could hypothetically pay higher wages without the match. That’s all true. 

However, the reality is that if the wages they pay you are sufficient for you to enter employment with them, even though the wage may be a little lower because they do offer a matching contribution, you shouldn’t look the gift horse of the 401(k) match in the mouth. Because, at that point, it is “free money”! 

Take Advantage of the 401(k) Match

Retirement funding is increasingly being pushed down to the individual level. Pensions are nearly a thing of the past unless you work for the government or one of the rare private companies offering them. 

The Social Security system is under a tremendous amount of pressure due to bad decision-making by those entrusted to manage it. Also, there’s an ever-expanding pool of people who have been granted coverage under the system that were never intended to be covered.  

So if there’s a glimmer of light at the end of the retirement tunnel, maybe, just maybe, it’s a little “free money” we can pick up in the form of an employer match to our 401(k). 

Have a great week, and share this with anyone you think needs to hear it!

Shane Barber

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The views expressed represent the opinion of Modern Wealth Management an SEC Registered Investment Advisor. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.

Historical IRA Contribution Limits