Last week, we talked about the importance of setting financial goals, one of which is often retirement. If retirement is a goal important to you (which we find hard to believe it wouldn’t be!), one of the most important things you can do is contribute to retirement accounts. There are a lot of options for this, but there is one in particular we want to talk about today.


Employer Matched Defined-Contribution Plans

If you are lucky enough to work for an employer that offers a matched defined-contribution plan such as a 401(K) or 403(B), you should be thankful! Participating in this type of plan results in free money to you, and who doesn’t love that? Not everyone has this option through their work, and if you do and aren’t taking advantage of it, you should do so right away.


In employer matched defined-contribution plans, your employer will contribute money into your personal account for your own future use, usually matching up to a certain percentage of your earnings. You won’t have to pay tax on this money until you withdraw it from the account. Our advice is if you have access to this type of plan, make sure you contribute enough of your pay to maximize the amount your employer will put in.


If you don’t know if your employer offers a matched plan, or if you know they do and aren’t taking advantage of it, talk to the plan administrator. Like we said, it’s free money to you, not part of your normal wages, which you need to participate in the plan to get. And it often isn’t a negligible amount either, it could be thousands of dollars a year extra.


There are a lot of excuses as to why people don’t participate in these types of plans. A common one is that someone can’t afford it. Granted, getting the maximum match means that you have to have dollars taken from your wages before you get your paycheck, so yes, you’ll have less take home pay, but you’ll also be paying less in taxes (your contributions are pre-tax so the dollars are not included in your taxable income). You’ll also be making a big impact on your future by accepting money from your employer outside of your wages. So, if your excuse is you can’t afford it, we would suggest taking a serious look at your expenses and make sure you can afford it, even if it means cutting back elsewhere.


If you have the opportunity to participate in this type of plan and aren’t, or if you aren’t maxing out the employer contribution, you should really do so immediately. There is only upside with this type of plan and you can’t afford not participating.