Who loves free?? I do!

Ever heard of the phrase nothing is really free? Well, there are somethings in life that are free!

In the previous post I discussed the 401(k) plan versus Roth 401(k) and how both are great savings vehicles for retirement.

Let us talk about free money – The Retirement Match:

What is the retirement match? Companies will match a percentage of your contribution into your 401(k) plan!

WAIT. So, if I put money into my 401(k) plan, my company puts money in my 401(k) too? YUP! FREE MONEY. Make sure to ask your boss or Human Resources if your company offers a 401(k) match!

The retirement match is critical in your financial future. I mean, why wouldn’t you want free money?

You will have to check what you match is at your company, because it can vastly be different from company to company and depending on your industry.

Here are some examples:
  • Company A matches 50% up to 4% of your gross annual salary (maxed at the IRS limit as previously mentioned). So, if you put in 4%, the company would match 50% of 4% or 2%! 2% would be free money!
  • Company B match 50% up to IRS maximum of your gross annual salary (maxed at the IRS limit as previously mentioned). So, if you put in 10%, the company would match 50% of 10% or 5%! 5% would be free money!

Let us dive into these examples more to show how you at a minimum, need to take advantage of your employer match.

  • Company A matches 50% up to 4% of your gross annual salary (maxed at the IRS limit as previously mentioned). You make $48,000 annually. If you obtained the full match, you would obtain $960 in pre-tax dollars from your company per year!

When someone is giving you free money, you might as well do whatever you can to obtain it! I have always told my friends and family who are on a shoestring budget to always at a minimum, obtain the company 401(k) match. Missing out on this could be a large financial mistake…

What is even better is the company will match, assuming you meet the minimum set by the plan even if you do Roth 401(k)! The match is always pre-tax dollars, not Roth.

What you should do:

I personally obtain the full company match as I contribute 15% of my salary to my Roth 401(k). The company matches in pre-tax dollars in my 401(k). Therefore, when I retire, I will have my large nest egg of company match in pre-tax dollars and then my larger nest egg of my tax free Roth 401(k).

You should take FULL advantage if your company matches even 1 or 2% of your contributions to your 401(k). Remember, the company match is PRE-TAX dollars. Even if you contribute 15% of your income into your Roth 401(k), the company match (if any) is pre-tax or in your normal 401(k).

The idea behind the company retirement match is to incentivize employees to invest for their retirement. I cannot tell you how many friends I know who do not save for retirement. EVEN WORSE is when the company offers an amazing company 401(k) match… You are legit not taking free money…

The company match is free money, if your company offers this as an option. If they do, take full advantage. These additional funds, while seemingly small at first, slowly grow and compound. The more you can save now, the bigger your nest egg and potentially, the sooner you can retire!

I personally believe by writing about these topics like free money from a 401(k) company match, I hope to change the financial lives of my readers. The world of finance and investing can appear confusing, like muddy water. I hope to continue to clear the water and make finance and investing simple, for everyone.

Your financial future is up to you and only you. What are you going to do about yours?

Until next time!