By Kim Gardey
If someone offered to deposit money into your retirement account every pay day, would you turn them down? Well, maybe someone has already made that offer.
If your employer offers a 401(k) retirement account, chances are good that as part of the plan, they will match a portion of your contribution. For example, a 401(k) plan might call for an employer to contribute 50 cents for each dollar that a participating employee chooses to contribute. This is free money!
Obviously, if someone is not contributing to this plan, they are missing out on the free money.
There are other advantages that accompany this free money:
- The employer’s contribution is not taxed until it is withdrawn following retirement.
- The income earned on the employer’s contribution throughout your working life is also not taxed until after retirement.
- You are able to take advantage of the magic of compounding.
Let’s look at a specific example to see more clearly the benefit of this free money to your retirement. Suppose your employer is depositing $50 each month into your 401(k) plan. Here is what those contributions along with income earned at 7% would total over various time periods:
Years of Contribution Total Accumulation
(including income earned)
This amount is above and beyond the contributions you, yourself, have made to your account.
By participating in your employer 401(k) plan, you have helped build your retirement plan the easy way.