Is your employee 401(k) match enough to retire on?

Free money only goes so far.

Written byMiranda Marquit

Fact-checked byDavid Schepp

Updated: Feb. 27, 2024

A phone screen displaying an IRS page about 401(k) plans.

How much should you invest after securing your 401(k) employer match?

You may have heard that it’s wise to contribute as much to your employer 401(k) plan as you need to collect the full match (if a match is offered). But should you go above and beyond in your 401(k), or are there other ways to get the most from your retirement planning?

Your situation—from your savings goals and aspirations to the contents of your personal balance sheet (i.e., assets and liabilities)—is unique. One universal truth is that when a company matches contributions to a 401(k) plan, it’s free money that can boost your long-term retirement strategy.

But when it comes to contributing amounts above the company match, you’re free to consider other options.

Key Points

Your employee 401(k) match is free money you can use for retirement.
Incorporate your company 401(k) match into your long-term retirement strategy.
Your 401(k) match might not be enough, so consider other retirement investment strategies as well.

How 401(k) matching works

A 401(k) is a retirement plan offered by your employer. In general, companies offer a 401(k) plan as part of their benefits package to help attract and retain employees. (If you’re self-employed, you have other options for saving for retirement.) A 401(k) match is simply another way to enhance the retirement benefit to further a company’s hiring and retention goals.

Here’s how an employee 401(k) match works:

Your employer agrees to match a portion of your contributions to your 401(k) plan.
The 401(k) match may be full (dollar for dollar) or partial (for example, 50 cents on a dollar), up to a set percentage of your income. Sometimes a combination is offered.
When you contribute to your 401(k), your employer kicks in the amount of the match, increasing your 401(k) balance—and giving you free money to grow over time as it’s invested.

Example of a 401(k) company match

Suppose your employer offers a match of 50 cents for every dollar you contribute, up to 5% of your gross pay (before taxes). If you make $48,000 a year, the maximum match you’d receive from your employer is $2,400, or $200 a month. In order to get the full match, you’d need to contribute $400 a month from your paycheck to your 401(k).

Good to know

Matching contributions aren’t offered only through 401(k) plans. If you work in the public sector, your employer may provide a match to a 403(b) plan. Learn how these two retirement plans differ.

But thanks to the match, instead of adding just $400 to your retirement account each month, you’d get a total of $600. That’s $200 of free money each month from your employer that can compound over the years until you retire. If you assume a 7% annualized return over 25 years, you’d have:

Without the match ($400 a month): $303,595
With the match ($600 a month total): $454,393

Just having that 401(k) company match could mean more than $150,000 extra in your retirement account.

Should you stop investing in your 401(k) plan after getting the maximum match?

Here’s where things get tricky. In 2024, the maximum an individual can contribute to a 401(k) plan is $23,000, plus an additional $7,500 catch-up for employees 50 or older.

In our scenario, you’re contributing $4,800 a year to your 401(k), so there’s still a lot of potential room left. But some experts suggest you stop adding to the 401(k) once you’ve maxed out your match. Why? The reasons include:

Some 401(k) plans have high plan administration fees, which will eat into your real returns over time.
Many 401(k) plans have limited investment choices.
Some employers only offer traditional, tax-deferred plans, rather than a Roth 401(k). The Roth version allows you to invest after-tax dollars and get tax-free withdrawals in retirement.

Those are good reasons to consider socking some of your retirement savings away elsewhere. But it doesn’t mean you’re done investing.

Where to put your money after maxing out your 401(k) company match

As the numbers in our example show, just getting your match and not investing a penny more is unlikely to provide you with a comfortable retirement. Even with the match, the example resulted in less than $500,000.

There are other ways to invest for retirement once you’ve maxed out your employee 401(k) match, including individual retirement accounts (traditional or Roth), a health savings account, and taxable investment accounts.

Individual retirement account (IRA)

Anyone 18 and older who earned income can open and contribute to an IRA. Your tax benefits depend on whether you choose a traditional or Roth IRA.
A traditional account offers a tax benefit now, through a tax deduction. A Roth IRA uses after-tax dollars, but your earnings grow tax-free, offering a tax benefit when you withdraw.
Many savers who qualify for a Roth IRA like the idea of maxing out the 401(k) match and then putting what they can into a Roth IRA to diversify retirement tax benefits.
In 2024, you can contribute up to $7,000 total to your traditional and Roth IRAs, with a $1,000 catch-up contribution for those 50 and older.

Health savings account (HSA)

If you have a high-deductible health plan and meet other requirements, you might have a health savings account (HSA) to help you pay for health care expenses.
Contributions to an HSA are tax deductible, and withdrawals from the account are tax free when used for qualified medical expenses.
Some workers like to invest a portion of their HSA funds so that the money grows and can be used to pay for health care costs during retirement. This reduces the need to draw from other retirement funds for medical expenses.
After age 65, an HSA functions much like a traditional IRA for nonqualified withdrawals—meaning you can withdraw the money for any reason and not face a penalty.
In 2024, you can contribute up to $4,150 to your HSA if you have an individual health plan, and $8,300 if you have a family health plan. Savers 55 and older can contribute an additional $1,000 as a catch-up contribution.

Taxable investment account

For those interested in retiring early (before age 59 1/2), it might make sense to include a taxable investment account as part of your retirement planning.
Be prepared to pay short- or long-term capital gains when you sell assets.
There’s no contribution limit, but there are also no special tax advantages.

Examples of using other strategies after maxing your 401(k) employee match

Suppose you decide to invest a total of $10,000 each year toward retirement. Based on our earlier example, you’re already contributing $4,800 to max out your company 401(k) match, leaving you with $5,200, or $433 a month to invest elsewhere. You could consider:

Putting the rest into a Roth IRA (if you qualify). You can potentially tap into your contributions (not your earnings) before age 59 1/2, and you won’t have to worry about paying penalties or taxes on your withdrawals.
Setting aside $345 a month in an HSA (the max in 2024). You might allocate $100 a month to the cash account so you can use it for current health care needs, and invest the remaining $245 for future health care costs during retirement. The remaining $88 a month can go into a Roth IRA.
Dividing the $433 into $144.33 chunks, each destined for a Roth IRA, HSA, and taxable investment account. These investments can grow over time to meet various needs based on your retirement strategy.

The bottom line

You’re unlikely to meet your retirement savings goals by contributing only enough to qualify for the match your employer offers. (If you’re keen on running the numbers, play around with our retirement calculator.) But a 401(k) plan isn’t your only option if you have more to invest. Instead, consider other investment accounts that can help you meet your retirement needs.

Finally, if you have enough money to allow you to max out your IRA and HSA accounts, and you don’t want to put more into a taxable account, there’s nothing wrong with beefing up your 401(k). And for some savers, it’s just easier to put as much as you can into a 401(k) plan for convenience. Even with fees, you’ll still end up ahead when you invest via your 401(k) plan compared with not investing at all.