Ploymint

Ah, investing for retirement. It’s not the world’s sexiest topic — but if you’re lucky enough to have 401k matching benefits from your employer, it’s totally worth studying up on so you can score that extra dough. But matching plans are pretty confusing, and designating a chunk of every paycheck just for retirement can feel painful. Here’s what you need to know about navigating your employer match 401k options:

Let’s start with the facts: In 2016, folks under 50 years old can contribute up to $18,000 annually to their 401k investment funds. Yes, that sounds like a ton of money to squirrel away, but the benefits are pretty big. That money won’t be taxed until you withdraw it upon retirement, which means you’ll get to take advantage of investment portfolio growth in the meantime.

As part of a benefits plan, many employers will offer employee 401k matching up to a certain amount. So how much should you contribute to your 401k? As much as you need to in order to take full advantage of your employer’s contribution. It’s free money! Yes, it’s free money that you won’t get to access until you’re at least 59 ½, but since money in your 401k grows exponentially, the more you put in now the better.

So, what might an employer 401k contribution plan look like? A common tactic is for a company to match 50 percent of an employee’s 401k contribution in a year, but the company won’t contribute more than a certain percentage of an employee’s annual salary. Let’s look at an example: in this case, your employer will match 50 percent of your contributions, but only up to 3 percent of your total salary. So, you’ll want to contribute at least 6 percent of your salary to take advantage of the employer match. Running the numbers, that means if you’re making, say, $40,000 a year, you’ll want to contribute $2,400 (that’s 6 percent of your salary). That way your company will contribute $1,200 — so you’ll sock away a total of $3,600 that year. You’re allowed to contribute much more than $2,400, but your employer will only contribute up to $1,200, since that’s 3 percent of your salary.

Another common matching arrangement is for an employer to directly match an employee’s contribution, up to a certain percentage. So, for example, if your company offers a 6 percent match, it’s a no-brainer to contribute 6 percent of your salary, since the amount you put away will literally double without you having to lift a finger. Going back to the $40,000 salary example, if you contribute $2,400 (that’s 6 percent) your employer will also contribute $2,400 — for a total of $4,800. Again, you can contribute more than 6 percent, but your employer won’t match anything higher than that. And if you contribute less than your employer match, they will only match that percentage (so if you only contribute 3 percent, they’ll only contribute 3 percent).

Even if you can’t contribute enough to get the full benefit of your employer’s match (hey, we know student loans are tough), be sure to contribute something. Every little bit helps, and the small amounts you contribute now will add up over time. Plus, it’s good to get into the habit of saving, no matter how small, so it’s easier to up your contribution when you’re in a position to do so.

Got any other tips on saving for retirement? Share them with us in the comments below!