The 401(k) Match Is Free Money - and the Fee Is a Silent Tax
Two numbers decide most of what your 401(k) becomes, and neither is the stock market. Contributing enough to get the full match, and the fee your plan charges. On a $70,000 salary over 35 years, getting those two right is worth more than $600,000.
Two numbers, and neither of them is the market
People agonise over which funds to pick inside a 401(k). It matters less than two things that take five minutes to check.
The first is whether you are contributing enough to collect the whole employer match. The second is what your plan charges you every year.
Get both right and the difference over a working life runs well past half a million pounds on an ordinary salary. Here is why.
The match: an instant return you can refuse
A common arrangement is a 50% match up to 6% of pay. Put in 6%, and your employer adds half of that on top.
On a $70,000 salary, worked through in the 401(k) calculator:
| You contribute | Your money | Employer adds | Left on the table |
|---|---|---|---|
| 0% | $0 | $0 | $2,100 |
| 3% | $2,100 | $1,050 | $1,050 |
| 6% | $4,200 | $2,100 | nothing |
| 10% | $7,000 | $2,100 | nothing |
Two things to notice.
Contributing 3% does not get you half the match - it gets you half the match and leaves $1,050 behind every year. That is not a small optimisation. It is a 50% instant return on money you were offered and declined.
Contributing 10% does not get you more match. The employer stops at 6%. Everything above that is your own money going in - still worth doing for the tax treatment, but it is a different decision, and it is worth knowing where the free part ends.
What that gap becomes
Now run both forward. Age 30 to 65, 7% returns, 2% pay rises, a 0.5% plan fee:
| Contributing | At 65 |
|---|---|
| 3% (half the match) | $505,570 |
| 6% (full match) | $1,011,140 |
| The difference | $505,570 |
Doubling the contribution rate exactly doubles the outcome, because the match doubles with it. The person contributing 3% ends with half as much - not because they saved half as much of their own money, but because they also collected half the free money.
The fee: charged every year, on everything
Here is the part almost nobody checks.
A plan fee is not charged on what you put in. It is charged on the whole balance, every year, forever. Early on that is a few dollars. By the end it is thousands a year, taken from a pot that would otherwise have kept compounding.
Same 6% contribution, same 7% returns, same 35 years - only the fee changes:
| Annual fee | At 65 | What the fee cost you |
|---|---|---|
| 0.05% | $1,118,785 | - |
| 0.50% | $1,011,140 | $107,645 |
Nearly $108,000 for a difference of less than half a percentage point a year. Identical contributions. Identical returns. The only difference is what the plan charged.
This is why “it’s only 0.5%” is one of the more expensive sentences in personal finance. Check what your plan’s funds charge - it is usually listed as an expense ratio - and if there is a cheaper index option doing the same job, the switch takes minutes and is worth more than most investment decisions you will make.
What you can put in for 2026
| Your age | Most you can contribute |
|---|---|
| Under 50 | $24,500 |
| 50 to 59, and 64 or over | $32,500 |
| 60 to 63 | $35,750 |
That 60-to-63 window is unusual and easy to miss - the catch-up is larger during those four years specifically. If you are in that band, it is worth knowing you can put more away than you could at 59 or at 64.
These limits cover your own contributions. Employer money sits on top, inside an overall cap of $72,000.
The trap when you leave a job
Vesting decides how much of your employer’s contributions you actually keep if you leave.
- Immediate - it is yours the moment it lands
- Graded - you keep a rising share each year you stay
- Cliff - you keep nothing at all until a set date, then all of it
A cliff schedule is the one that catches people. Resigning one month before it can cost you every penny your employer ever put in. If you are thinking of moving jobs, find out which type you are on and what the date is before you hand in your notice. The 401(k) calculator shows what you would forfeit if you left today.
Four things to check this week
- What percentage does your employer match up to? Contribute at least that. This is the single highest-return action available to most people.
- What do your funds charge? If a cheaper option tracks the same thing, switch.
- What is your vesting schedule, and what is the date? Especially if you might move jobs.
- If you are 60 to 63, check whether you are using the larger catch-up.
Run your own salary and match through the 401(k) calculator - it shows the match you are missing, what the fee removes over your working life, and what you would forfeit by leaving early.
Common questions about 401(k)
How much should I contribute to get the full match?
Whatever percentage your employer matches up to - no less. On a common 50% match up to 6%, contributing 6% of a $70,000 salary earns $2,100 a year from your employer. Contributing 3% earns only $1,050. That missing $1,050 is money you were offered and declined.
Is contributing more than the match worth it?
The match stops but the tax advantage does not. Above the match threshold your employer adds nothing extra, so the decision becomes a straight comparison against other uses of the money. Below the threshold it is not really a decision at all - turning down a 50% instant return is very hard to justify.
Do plan fees really matter that much?
More than almost anyone expects. A fee looks small as a percentage but it is charged every year on the whole balance, so it compounds against you for decades. On a 35-year projection, moving from a 0.5% fee to 0.05% is worth $107,645 - on identical contributions and identical returns.
How much can I put in for 2026?
$24,500 if you are under 50. From 50 you can add a catch-up of $8,000, taking it to $32,500. Between 60 and 63 the catch-up is larger at $11,250, taking it to $35,750. Those are limits on your own contributions - employer money sits on top, within an overall cap of $72,000.
What is vesting and why does it matter?
Vesting decides how much of the employer's money you keep if you leave. Some plans are immediate, some hand it over gradually, and some give you nothing until you have served a set number of years. Leaving a month before a cliff can cost you every penny the employer contributed - worth checking before you resign.