The 401(k) Match Game Couples Are Losing

Imagine that someone offered you free money to save for retirement. Now imagine that you turned the offer down. While this may sound ridiculous, it's exactly what many married couples are doing.

That's the conclusion of three economists who studied the ways couples manage — or, more accurately, mismanage — their 401(k) plans.

It's something couples will want to pay attention to when they make their employee benefit decisions for 2024 during open enrollment season.

In their National Bureau of Economic Research paper with the rolls-off-the-tongue title, "Efficiency in Household Decision Making: Evidence from the Retirement Savings of U.S. Couples," the authors found that roughly one in four married couples aren't taking full advantage of the 401(k) matching contributions their employers offer. They called this error a "widespread inefficiency."

A match is when an employer puts a certain amount of money into an employee's 401(k) account once the worker funds that savings plan.

When spouses who each have 401(k)s don't contribute to the 401(k) with the better match before funding the plan with the lesser — or no — match, it's costing them $682 a year, on average, the researchers found in their analysis of 6,200 401(k) and 403(b) plans.

Worse, couples making this error tend to do it again year after year, according to the study. That can really depress chances of achieving financial security in retirement.

"You can leave a lot of money on the table by not fully exploiting an employer match," says Cormac O'Dea, a Yale University Department of Economics Faculty Research Fellow who was one of the study's authors.

Here's the most surprising finding in the study: "A quarter of couples could — essentially by just changing who does some of their saving — do the exact same amount of saving and get more from their employers," O'Dea says.

In other words, couples who are missing out don't need to save more than they currently do. They just need to reallocate where their 401(k) savings are going to take full advantage of employers' willingness to match some of their employees' retirement savings.

Many working couples incorrectly assume that all 401(k)s are essentially the same and that one spouse's match is identical to the other's, so they put equal amounts into each spouse's 401(k) account. But, while many plans contribute 50 cents for every dollar an employee invests up to 4% to 6% of pay, some are far more generous.

Dollar General, for example, matches 401(k) contributions dollar-for-dollar up to 25% of pay. Visa puts in $2 for every $1 employees contribute, up to 10% of pay, according to the Carrymoney site.

The difference can be considerable. Consider a hypothetical couple that earns $100,000 annually and wants to save $10,000 for retirement. If they put half in Company A's plan, which matches 50% of savings up to 4% of an employee's salary, and half in Company B's plan, which matches 100% of savings up to 10% of salary, they would receive $6,000 in matching funds. But if they put all of their 401(k) contributions in Company B's plan, they would get $10,000 — $4,000 more.

By not talking with each other about their company's 401(k) match, "couples are saving less for retirement than they could be, and it wouldn't cost them anything," says Craig Copeland, director of wealth benefits research at the Employee Benefit Research Institute (EBRI).

Copeland says he wasn't particularly surprised by the study's findings, though.

"People don't fully understand their benefits," he says. Couples may compound that problem by choosing their employee benefits separately rather than make decisions jointly, Copeland notes.

"It's all over the place what the maximum match is and what the match rate is," says Copeland.

Certain couples are more likely than others to make their 401(k) matching choices wisely, the researchers found.

"Couples who have been married for longer, who had a joint bank account the year before getting married, who have kids together and who own a house, tend to do better [at coordinating their matches]," says Taha Choukhmane, an MIT Faculty Research Fellow who co-wrote the study.

"These are the kinds of couples that communicate more with each other; that know they're in it together for the long haul," he adds.

Even couples who work for the same employer often make mismatches, the study finds. "You may have one spouse who contributes above the match and the other who's not contributing," says Choukhmane.

Some couples make other financial goofs by not communicating and coordinating their finances.

Choukhmane cites a study from Finland about couples where one spouse had a lot of credit card debt and the other had a sizable checking account earning a low rate of return. "As a couple, they would be better off taking some of the money from the checking account to pay the credit card debt," he says.

The researchers say they realize that some spouses prefer to keep their finances separate from their partners.

But "just because you keep your finances separate does not mean you can't avail yourself of the matching opportunity," says O'Dea.

When making your 401(k) decisions for 2024, keep in mind that the maximum allowable contribution will be higher than in 2023.

Next year, most workers offered 401(k)s will be allowed to invest as much as $23,000, up $500 from this year.

People aged 50 and over will be able to put in as much as $30,500, due to the "catch-up" contribution rules for older workers.

Richard Eisenberg is the former Senior Web Editor of the Money & Security and Work & Purpose channels of Next Avenue and former Managing Editor for the site. He is the author of "How to Avoid a Mid-Life Financial Crisis" and has been a personal finance editor at Money, Yahoo, Good Housekeeping, and CBS MoneyWatch. Read More