maximize your 401k plan

How To Maximize Your 401k Plan

US workers are missing out on $24 billion of free money each year! All because they’re not taking full advantage of their company’s 401k plan.

The majority of today’s employers offer some sort of matching retirement plan. But one in four workers aren’t participating. This, according to a study by advisory Financial Engines. That’s money that is literally being wasted.

Editor’s Note: This is part one in our series on how to invest your 401(k) account. See also:

The Money is Yours – So Take It!

When you were originally hired for your job, your employer offered you a compensation package. This package was tied to the value that you bring to the company, and what the company is willing to pay for your hard work and expertise.

Too often, employees look at their salary and bonus, without paying attention to retirement benefits. But the majority of employers offer some matching program as part of each compensation package. This means your employer will pay into your 401k plan, based on the dollar amount you set aside.

Oops! We could not locate your form.

This employer contribution is budgeted in as part of your total compensation. Yet many employees literally pass up this compensation. That’s just about as dumb as passing up a raise, or refusing a bonus from your boss!

If your employer offers a 401k plan that includes a matching program, you owe it to yourself and your family to take full advantage of this compensation.

Why Some Employees Skimp On Their 401k Plan

So why would some people skimp out on their 401k plan and refuse money being paid by their employer? Obviously every person’s situation is different. But here are three primary reasons employees may choose not to participate in a matching 401k plan.

1. The need for immediate cash flow

There are times you may not be able to afford committing some of your paycheck to your 401k plan. A few years ago, my family had some large unexpected medical bills. In order to stay current on our obligations, I had to temporarily stop saving for retirement.

This scenario may make sense temporarily. But long-term, it’s important to budget so that you can set money aside for retirement. If your employer is willing to match (or partially match) your 401k plan allocation, you should do whatever you can to take advantage of this opportunity.

2. Better investment opportunities elsewhere

You may think that you’re better off abstaining from your 401k plan. With a larger paycheck, you can then allocate cash to better investment opportunities. Maybe you have an opportunity to invest in a friend’s business. Or maybe you have a brokerage account you would prefer to use.

But consider this: Even an employer that matches half of your contribution, still gives you an immediate 50% return. Plus, you’re able to make this investment in a tax-deferred account.

It would take a pretty amazing investment opportunity to trump a guaranteed and instant 50% return.

3. Not knowing your employer even offers a match

Some employees don’t even realize that they’re eligible for 401k plan. Or maybe they know about the plan, but they don’t understand their employer will contribute to it.

If you receive a regular paycheck, you should find out if your employer offers a 401k plan. If so, the next question is whether your employer matches (or partially matches) your contribution. These are important questions to ask. After all, you could be collecting thousands in extra income each year.

Action To Take Today…

If you’re reading this, and you don’t know what kind of package your employer offers, today is the day to find out. I encourage you to contact your HR manager and find out what kind of matching program you’re eligible for. And then fill out the (minimal) paperwork to make sure you’re fully participating.

And if you are aware of your 401k plan, but you’re not fully participating, it’s time to make a shift. Even if it means picking up a temporary side job or some freelance work to cover your cash flow needs. Setting aside money for your 401k plan, and receiving your employer’s matching dollars is an important step to take.

Next, we’ll talk about some of the options you have for investing within your 401k plan. You might be surprised with how much flexibility you have, and the different ways that you can grow your retirement savings.

Zach Scheidt