If your employer offers a 401(k) plan, it can be a great way to invest for your retirement. Your 401(k) contributions reduce your taxable income, and they grow tax-deferred until you take money out of the account.
Jeff Gonzalez, CPA and CFO at Los Angeles-based Electric Entertainment, says, "A 401(k) match is one of the best benefits you can get from your employer." In a 401(k) match, your employer deposits additional money into your account based on the amount you contribute. Typically, an employer will match up to 50 percent of the first 6 percent of your income that you contribute to a 401(k).
Gonzalez notes, "Even though a 401(k) match is money paid from your employer for your benefit, you don't have to report that match as income, and you don't have to pay tax on it when you receive it." You will owe tax on the matching funds when you withdraw them from your 401(k), as you will on all of your contributions and earnings.