If your employer offers a 401(k) and you aren’t taking advantage of it, you may be losing out on hundreds, or even thousands of dollars a month.
What is a 401(k)?
A 401(k) is a retirement account that is sometimes provided by your employer. Contributions made to a 401(k) are deducted from your paycheck before you pay any taxes. Many companies will match half of your contributions your make to a 401(k) and some may match 100% of your contributions.
A Very Simple Example
Let’s say you make $1000 a week and you have the opportunity to contribute to a 401(k). If you choose to contribute to your 401(k) and contribute 6% of your salary, you will put away $60 a week or $240 a month. If your employer matches up to 3% (half of your contribution), you will also get another $240 a month FOR FREE.
If you don’t choose to contribute to a 401(k) you could be losing thousands of dollars in free money a YEAR. Let’s take this example even further: let’s say you are missing out on $60 a year for 30 years if you stay at the same employer. Assuming an 8% rate of return that $240 a month of FREE MONEY will turn into over $350,000!!!
Should I contribute to my employer’s 401(k) plan?
The answer to this question will vary from person to person. My recommendation is this: if your employer matches contributions you make to a 401(k) you should ALWAYS contribute. The money that your employer is contributing is FREE MONEY. Would you turn down a bonus from your employer? If you choose not to contribute to your 401(k) that is what you are essentially doing.
Does your employer offer a 401(k) plan? Do you make contributions? Why or why not?