Who said there is no such thing as free money?
Millions of Americans contribute to their company’s 401k annually, however, there are also MILLIONS of eligible Americans who do not. It is very common that most companies will match each employees contribution. The catch? You have to actively contribute to receive the employer match.
Since 2006, employers are allowed to automatically enroll their employees into their 401k and force their employees to opt-out. There are different flavors of 401k employer contributions including profit sharing, safe harboring and employee matching. Be sure to read the details of your 401k plan as there may be terms that require a certain time of service before you are eligible.
How does this all roll out? If you make a salary of $40,000 and have an employee match of up to 3% at a bare minimum be sure to contribute 3% to ensure the full company match. That equates for $1,200 of free money! Can’t argue with getting 100% return on your investment!
According to The Profit Sharing/401k Council of America (PSCA), of the 1,100 plans surveyed, there was an average of 4.4 percent of payroll contributed to employee 401k plans. Who was missing out? 19.1% of eligible participants did not enroll in their company’s 401k.
Seek the advice of a financial advisor to go over your 401k plan options. Some plans require the purchase of company stock and what history tells us, is never a good option to place your entire nest egg in.
If you company does not offer a 401k plan, encourage them to do so.