If I could pick one day a year to repeat over and over again it wouldn’t be Christmas. It wouldn’t be my birthday either. Nope, the best (or at least most profitable) day of the year for me is 401k match day.
My company gives a 100% 401k match for up to 6% of your contributions, and then gives an extra 2%. The only thing is I don’t get the match every paycheck. The company contribution builds up over an entire year and is deposited in my account in one lump sum at the end of March.
That day was yesterday for me, which means my net worth got a huge boost!
401k Employer Contributions are Tax Free
When you contribute to your 401k, that money goes in tax free (unless it’s a Roth 401k). You will not pay taxes on that money until you take it out for retirement or the government changes the laws.
It’s the same when your employer contributes money for you. If they want to put $5,000 in your 401k, you get all 5,000 bucks! Get out of my pocket Uncle Sam!
If I were to ever look for a new job, one of my biggest concerns would be the 401k program. I get essentially an 8% match, which as far as I’m concerned is just an 8% raise over and above my annual salary. That’s crazy good and not many companies can match it.
Employer Matching is the Only Reason I Use My 401k
While I do love the 401k matching my company offers, I don’t really love the 401k for lots of reasons.
- My investment options are limited (not enough Australian and Asian options)
- I’m afraid the government might raid 401ks when they really need more money
- I hate having money tied up for so long
- I plan to retire on income, not savings
It would probably take me until I was well into my late 50’s or 60’s to retire on savings alone. I don’t wanna wait that long.
I’ve said it many times before, but I’ll say it again. If I can create enough passive income to pay for my life, then I’m going to do it and quit my job. As long as that passive income is steady then I can use that to live and don’t have to work.
With all that being said, I still can’t pass up a 401k where I’m getting such a great match. Heck, I could withdraw all my money out of my 401k and still come out ahead after taxes and penalties thanks to my employer’s contributions.
Readers: Do you have a 401k? Does your company match? If so, do you get a match every paycheck, or once a year like me?