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Please Tell Me You Take Advantage of Your 401k

According to this issue of the Employee Benefits Research Institute, 69% of eligible workers participate in their 401k plans in 2010. That means almost a third of eligible employees aren’t contributing anything at all.

Even if we take into account that some of these plans do not match contributions, millions of people are passing up free money!

This post is not to tell you the normal rules (don’t take out loans on your 401k, don’t cash your 401k out when you switch jobs, contribute as much of the $16,500 a year as possible, etc).

This post is to yell at everyone who is ignoring free money.

For the sake of all that is sacred to you, contribute the maximum that will be matched by your company. That is free money that is part of your benefit package. Not taking advantage of that is like handing back a paycheck and saying “no thanks”.

Don’t whine that you’ll miss that percentage of your paycheck…you won’t. I never notice the 6% that’s missing from mine. Unless you are truly starving, this is necessary.

I know that my readers probably already do this. I know I’m probably preaching to the choir. For self-employed, the Solo 401k is there for you. 

BUT, if you are one of the eligible workers that aren’t snatching up your free money, I triple dog dare you to sign up today. Really, go do it now. 

On a separate but related note I started using the cheapest tax software to track stuff life investments and the 401k. If you don’t keep track of this stuff throughout the year in an organized way then it piles up and becomes overwhelming.

7 thoughts on “Please Tell Me You Take Advantage of Your 401k”

  1. MikeS

    I do take advantage. The company matches half of your contribution, up to a max of 6%. They also have a “floor” contibution, 1.5%, which you get whether you contribute or not. All in all, if you contribute at least 6%, the company is giving you 4.5%. I also have a defined contribution pension. Based upon my age, the contribution to that is 4%. When I total everything up (mine plus company), I’m putting about 15% of my salary aside. I like it!!!!

  2. Keith Morris

    Is there any advantage of a 401k over an IRA if your employer isn’t matching on the 401k?

  3. Kate

    There is nothing better than getting your 401k statement in the mail and seeing how much you are saving for retirement!

  4. Jim R

    According to Fidelity, about 20% of employers do not match 401k contributions at all as of end of 2009 which is a pretty large %. But its not necessarily that the companies are not giving benefits. Many companies like mine have pensions and 401ks. I don’t contribute to my 401k because theres no match.

  5. BFS

    MikeS…very nice!

    I’m only putting away 12% with the company match right now since we’re working on the Roth IRA too, but I do hope to get both Roth IRA’s fully funded and increase my 401k to 14% from me and 6% from my company.

    Kate, in our case, it’s by email but just as happy! 🙂

    Keith Morris, I know that most 401k’s have the benefit of lower fees, but I looked up some other differences.

    According to Financial Web (https://www.finweb.com/retirement/401k-vs-ira-which-is-better.html), the benefits of a 401k over a regular IRA include:

    – a much higher contribution limit
    – you can borrow from your 401k if necessary without a huge penalty
    – there are circumstances (like medical bills or disability) that allow you to withdraw from a 401k before age 59 ½
    – many mutual funds will waive their load (sales fee) for 401k plans.

    BUT, a regular IRA may have more investment options and it is usually easier to move your money around at will.

    I like the diversity of having my 401k and a Roth IRA. If we ever successfully max out both our Roth IRA’s, I’ll be upping my 401k contributions instead of opening a regular IRA.

    Jim R, if I had a pension and a no match 401k, I probably wouldn’t be contributing to my 401k either.

    I’d be contributing to our max of two Roth IRA’s and then feed any extra to our opportunity fund for stocks or whatever.

  6. Daddy Paul

    “This post is to yell at everyone who is ignoring free money.”
    I am glad to know I am not the only one saying it. If your income is low enough you may qualify for the savers tax credit which you may get a 50% tax credit on your contributions!
    I have heard the worst excuses not to contribute up to the match.
    Keep up the good work!

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