FREE MONEY: Capturing The Match In A Retirement Plan
FREE MONEY
If you were walking down a sidewalk today and came upon a stack of cash, would you step over it and keep on walking? Lots of people do exactly that in their workplace. With the demise of traditional pension plans, many employers offer 401(k) and other retirement arrangements where the employee can contribute to their accounts and also receive a contribution from the company. These employer-provided funds are known as the match.
401(k)s, SIMPLE IRAs, SEPs and other qualified retirement plans are set up by employers so that employees can contribute funds on a tax-deferred basis and earn returns on that money through the years. They are called defined contribution plans. Often the employer will offer to match a portion of those funds using a formula based on annual compensation. But in order to get this bonus, employees have to participate and "capture the match."
Recent research has shown that a surprisingly large number of workers do not place funds into these plans and miss the opportunity to collect what amounts to free money. Of course, in today's tough economy it can be difficult to squeeze out a savings contribution from a slimmer paycheck. But for those who can re-work their budgets and find those funds, the payoff can be big. You can get help with budgeting by clicking this link docs/lessons - understanding income and expenses.pdf
INTEREST RATE ON YOUR SAVINGS: 100%
Look at it this way: if you contribute $1.00 to your 401(k) and your employer adds $1.00, then you have an effective interest rate of 100% on your money. Compare that to what your bank is offering. In addition, you won't be taxed on that "interest" until you withdraw that money years from now when you'll probably be in a lower tax bracket. Over time these regular and matching contributions should produce a pool of resources that can greatly enhance your retirement finances. To get an idea of how matching contributions grow your account, I recommend this site from BLOOMBERG.
Our current recession saw a sharp increase in the number of employers that dropped the matching portion of their retirement plans, but as the economy improves look for most firms to reinstate those benefits at some level. Any extra funds that you can generate in the future and contribute toward capturing the match would reward you handsomely. There is a credit card commercial currently on TV where a popular comedian asks the question of a baby: "who doesn't like free money?"
Good question.
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