If I could pick one day a year to repeat over and over again it wouldn’t be Christmas. It wouldn’t be my birthday either. Nope, the best (or at least most profitable) day of the year for me is 401k match day.
My company gives a 100% 401k match for up to 6% of your contributions, and then gives an extra 2%. The only thing is I don’t get the match every paycheck. The company contribution builds up over an entire year and is deposited in my account in one lump sum at the end of March.
That day was yesterday for me, which means my net worth got a huge boost!
401k Employer Contributions are Tax Free
When you contribute to your 401k, that money goes in tax free (unless it’s a Roth 401k). You will not pay taxes on that money until you take it out for retirement or the government changes the laws.
It’s the same when your employer contributes money for you. If they want to put $5,000 in your 401k, you get all 5,000 bucks! Get out of my pocket Uncle Sam!
If I were to ever look for a new job, one of my biggest concerns would be the 401k program. I get essentially an 8% match, which as far as I’m concerned is just an 8% raise over and above my annual salary. That’s crazy good and not many companies can match it.
Employer Matching is the Only Reason I Use My 401k
While I do love the 401k matching my company offers, I don’t really love the 401k for lots of reasons.
- My investment options are limited (not enough Australian and Asian options)
- I’m afraid the government might raid 401ks when they really need more money
- I hate having money tied up for so long
- I plan to retire on income, not savings
It would probably take me until I was well into my late 50’s or 60’s to retire on savings alone. I don’t wanna wait that long.
I’ve said it many times before, but I’ll say it again. If I can create enough passive income to pay for my life, then I’m going to do it and quit my job. As long as that passive income is steady then I can use that to live and don’t have to work.
With all that being said, I still can’t pass up a 401k where I’m getting such a great match. Heck, I could withdraw all my money out of my 401k and still come out ahead after taxes and penalties thanks to my employer’s contributions.
Readers: Do you have a 401k? Does your company match? If so, do you get a match every paycheck, or once a year like me?
Kevin McKee is an entrepreneur, IT guru, and personal finance leader. In addition to his writing, Kevin is the head of IT at Buildingstars, Co-Founder of Padmission, and organizer of Laravel STL. He is also the creator of www.contributetoopensource.com. When he’s not working, Kevin enjoys podcasting about movies and spending time with his wife and four children.
I get a 3% 401(k) contribution from my employer, which I appreciate since many other companies around here are not making any 401(k) contributions these days. 8% is crazy!
We get our 3% of salary whether we contribute ourselves or not.
Match goes in every paycheck, which I like too, because theoretically it’s taking advantag of dollar cost averaging.
My eomployer does not match my 401(k). I put a good chunk into my 401K to lower my income since I have a lot of investments where I have no withholding taking out of them. It is kind of a balancing act for me. Right now I am lucky that I have a lot of very solid choices with fairly low fees that make my 401K borderline good.
I do not get a match on my 403(b), but we do have a choice of a wide range of approved vendors. I went with Vanguard because even without the match, having the low cost and wide range of options that VG provides makes it worth it. Plus the obvious tax breaks.
We get an 8% match every paycheck, which I agree is pretty amazing… and yet I still have a coworker who doesn’t use it!!! (We’ve talked about it because we started at the same time and are both new in our careers, so we talk about a lot of stuff.) Literally… I just feel stunned and annoyed every time I think about it. IT’S FREE MONEY!!!
The 401K would be a *really* good deal…if the government would leave it alone. But they are planning right now to steal that from you. For your “protection” of course. Watch for the new bills in this session to force 401K’s to “invest” in government securities.
When I worked for a larger employer, I would get the match in every paycheck. Now that I am at a smaller firm, it gets deposited at the end of each quarter. I love watching the jump my 401k takes at the end of every quarter. I also get profit-sharing as well as safe harbor contributions into my account each quarter as well to add to the boosting effect.
My company gives a very small match and it is given with each pay cheque.
I only contribute up to the match but there are many people with decades of service at my work that never signed up to get the free money.
I do not understand the statement “I plan to retire on income, not savings”. Please expand.
My company matches the first 5% and I love it. I’m so glad it matches because it makes the ups and downs in the market more managable for me. My investments would have to drop a large percentage before it effects the money I invested. I think it helps get many people to invest when they otherwise wouldn’t, which I think is needed considering how many people who do have to work part-time or even full-time during their ‘retirement’.