What should I ask about a company's 401K when starting my first job?

What should I ask about a company's 401K when starting my first job?

Fantastic, you made it through college, walked across the stage at graduation, received your diploma, and got that first career job offer. What should you ask your prospective employer about benefits, specifically about retirement plans? We understand that saving for retirement is essential, and it is best to start as early as possible. However, you need to know the conditions the company you work for has regarding retirement plans. Not all companies are created equal, and not all policies are the same.  

If your company has a 401k retirement plan set up, that is great. Items that are not up to you, but you need to ask about are contribution matches and vesting periods. Vesting periods are the amount of time you must stay with the company to keep their 401K contribution matches, and matches are easy ways to earn free money from the company you work for. For instance, a company may offer a full 100% match on your contributions up to 5% of your income. After that, it may be a 50%, 25%, or 0%, up to a certain point when employer matching contributions are capped. It could be a lot less; each company is unique, and so are their benefit packages, for example.  

  • Andre: The company provided a 401K plan with a 100% match up to 5% of salary.  
  • Tom: Received a 100% match up to $3,500 and 25% after, with a cap of $5,000 per year.  
  • Suzy: Got a 25% match on all contributions to their 401K plan. 

Getting any benefit is a plus, but there is a catch though. Many companies have a vesting period on 401K plans, where if you leave before you have become fully vested, you may lose some or all of the company's contributions. Your contributions are yours even if you leave the company.

It is essential that you take the time to read over your benefit packages from all job offers and ask them for details on contribution matches, vesting periods, and anything else you are unsure about. Asking questions and knowing is better than guessing. Also, understand that every company is unique, and they may not offer the same plans. Some may provide fewer contributions but give more benefits in another form, so as you take that first job, make sure to look through all the benefits and decide what is best for you.

Written by Chet Stock, Financial Wellness for College Students Peer Educator, University of Illinois Extension, Spring 2021. Reviewed by Kathy Sweedler, University of Illinois Extension.

For more financial education content, follow us on InstagramFacebook, or Twitter.