The 401(k) was created after the Revenue Act of 1978 went into law. The man who is given credit for utilizing the Act to build the first 401(k) plan was Ted Benna in the early 1980s.
You would think after almost 40 years we would all know the ins and outs of these plans and everybody through their participation would be taking advantage of them for their own retirement. Well, you thought wrong.
U.S. Census Bureau data shows that only about one third of workers are saving in a 401(k) or similar retirement plan at their employer. This is a huge mistake.
The 401(k) is a great tool for retirement savings. It allows for tax-free investment, tax-deferred growth and free money! Who doesn’t want free money!?!
In later posts we will get into important details about the 401(k), but for now I just want to talk about the company match, that is the free money!
It is imperative that if your employer offers a match, you contribute at least up to that match. In our example if you don’t contribute at least 5% of your salary into the 401(k), you are actually giving up $2,500 per year. That is significant money which, over time, will grow to over a quarter million dollars. That is money that would not be there had you not contributed.
Many employees don’t realize what they are giving up by not taking part in the plan. If we can improve financial literacy, we can improve participation and in the end improve people’s lives by giving them a comfortable retirement.
If you haven’t reviewed your 401(k) or similar retirement plan at work you should contact your CERTIFIED FINANCIAL PLANNER™ to get started.