Personal Finance

I make around $40k per year and found out my company will match 50% of my contributions towards my 401(k) - should I start contributing?

Joey Frenette

Published: February 7, 2025 7:41 am

It really can pay big dividends to think of a 401(k) match from your employer as receiving “free cash” or a “conditional raise” of sorts. Undoubtedly, you’ll need to contribute a portion of your hard-earned dollars from every paycheck as well.

And that money is to be stashed away for the long haul until your eventual retirement. Though delaying gratification, especially earlier on in one’s career, is a hard thing to do, especially amid the affordability crisis many Americans face, one has more than enough incentive to shift the budget around to shore up enough to take advantage of any “free cash” opportunities an employer may throw their way.

Indeed, if “needs and necessities” comprise most of one’s budget, contributing to a 401(k) may not be possible. And if lifestyle adjustments can’t be made (think canceling streaming subscriptions or getting a roommate), one should not feel shame by forgoing a 401(k) match, so as long as one is taking steps towards eventually being able to contribute enough to get as much of a match as possible from their employer. If you’re going to get “free cash” from work, you may as well maximize it.

A 401(k) match is more than enough incentive to start contributing.

In this piece, we’ll look at the case of an individual who posted on the r/Retirement401k subreddit inquiring about their work’s 50% 401(k) match. They just became eligible for their work’s 50% 401(k) contribution match benefit (of up to 6%) and are wondering if they should contribute a portion of their paycheck to get the full match. Indeed, making the contributions will feel like taking a slight pay cut during any given payday.

That said, when it comes to one’s overall wealth, it’s like getting a nice 6% raise. That seems quite modest. But give it a few years, and that employee match could make a whole world of difference. That’s the power of tax-free compounding made possible by a 401(k). Additionally, you’ll have less tax burden on your shoulders in any given year by making the contribution. That’s a big plus with a rather limited annual income.

Once one is ready to retire in a few decades, that match could translate to an unfathomable amount, especially if the 401(k) proceeds are being put to work in a low-cost equity index fund. In the case of the Redditor, who’s making $40,000 per year, it sounds like they’re able to take advantage of the full 50% match from their employer. They’re already on the right track. And while it may entail sacrificing some comforts and conveniences in the present and near- to medium-term future, they seem more than willing to delay gratification for a shot at a padded retirement.

What about a second wave of inflation in America driven by inflation?

Of course, with a rather limited income, the budget could get a whole lot tighter in the coming years, especially if Trump tariffs drive up prices on a wide range of necessities. Although tariffs and a potential trade war with more than one nation are on the table, we just don’t know how long they’ll be imposed and if the amount of coverage will be reduced. Indeed, the last thing the Trump administration wants is higher inflation and more reasons for the Fed to hold off on further interest rate cuts or, worse, kick off a new rate-hike cycle.

While it’s hard to tell what’s next with inflation, I do think getting the most of the match in the meantime makes sense. Should inflation surge and there’s less cash to save and invest due to rising necessities expenses, perhaps the contribution rate could be lowered later.

Ideally, it would be nice if the person received a raise so that they’ll be able to adjust to the higher cost of living while being able to maximize the 401(k) match offered by their employer. In any case, if you get a 401(k) match, it should be viewed as a benefit that you should make the most of. Either way, run your budget by a financial advisor so that you can plan for retirement while also meeting your needs in the near term.