Match Game: Employer Matching Funds

Ray’s Take: I am amazed at how many times when I ask people how much they are contributing to their 401(k) the answer comes back, “Whatever the match my company gives is – I love free money!” There’s a much better way to make that decision, but that is a topic for another column. There are a number of reasons companies offer some form of match and they may not all be charitable.

While it’s good advice to never leave money on the table, you should always do a financial plan that includes all investment options first to get a truer picture of where you are in relation to where you want to be.

401(k) matching funds are touted as “free money,” but there usually are strings attached. As a general rule, employer-matching funds are not fully vested for a specified period of years. On average, five. So, what happens to those funds if you leave your job before you’re fully vested? They don’t all go with you.

With the trend away from spending your career in one company, you shouldn’t count your chickens before they are hatched. But don’t worry about your own money that you have deferred. It’s yours from day one and goes with you when you go. According to the Bureau of Labor and Statistics, workers between ages 25 and 34 have been in their jobs, on average, less than three years.

Take a close look and be sure you understand the particular 401(k) plan you are thinking about investing in so that you understand the vesting schedule along with when the company matches. It could be with each paycheck – or it could be once a year. That can also make a big difference in gains.

Contributions to a 401(k) lower your taxable income. A point for a 401(k) investment, but calculate the actual value of that over time to be sure you make the correct decision for you. It’s harder to be tempted to spend money that never hits your checking account.

Depending on your personal circumstances, the company matching funds might be a good fit up to the amount that the company matches, but it’s best to look at all your options and have a clear picture of your long-term plans before signing up.

Dana’s Take: Saving with a 401(k) account can pave the path to financial security. I’ve been reading the book “Everything That Remains,” by two young men who call themselves “The Minimalists.”

In their popular social media sites, they advocate giving away possessions and even leaving non-fulfilling jobs in order to experience life more fully. They point to the vicious cycle of consuming and then working to pay for our excessive consumption.

Our time is actually more valuable than money, they say, because we can always make more money but we can never make more time. Ouch.

Become conscious of the balance between spending money and spending life.

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