Monday, October 18, 2010

Take the Free Money!

It's been said that there are "no free lunches on Wall Street" and that is indeed very true...except in one circumstance. Granted, this isn't a "fully" free lunch - you're not getting something for nothing - but it's basically free money. So what am I talking about? The answer: taking advantage of your employer's matching 401(k) contribution policy. If your employer matches your 401(k) contribution, you're basically receiving free money. While you do have to contribute something to be eligible to be matched (hence why it's not entirely "free"), there isn't a single sound argument out there as to why you should avoid contributing so as to receive the match.

In a weekend article in The Atlantic, Daniel Indiviglio points out the following:

"When your company promises to match some contribution to a 401(k), it's like giving you a raise. Refusing the match is like telling your company that you don't want extra money. Imagine an example where you make $1,000 per paycheck. Now imagine if your company agrees to match 50 cents per dollar up to 6% of your 401(k) contribution per paycheck. That means you can put up to $60 per paycheck into your 401(k) and your company will also contribute $30."

If your employer offered you free money, wouldn't you take it? If your employer does indeed match your 401(k) contributes, you should max out your contributions so as to receive the highest employer match possible. In doing this, you'll be well rewarded in the future when your retirement goal is attainable at a younger age

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