Wednesday, May 23, 2007

Get Some Fast Money: The Employer Match

There is a way you can get fast money, for real and you won't have to do any extra work. It's the employer match in a 401(k) account. Employer sponsored retirement savings plans, like 401(k)s and their equivalents (such as the federal government's Thrift Savings Plan) often have a feature where your employer matches your contributions up to a certain percentage. For example, an employer might match up to 3% of your salary or wages that you contribute to the plan. The match is equivalent to an immediate 100% return on your investment. There's nothing in the financial markets that an ordinary investor can get which would be better.

With some 401(k) plans, the employer match may not "vest" (meaning, truly belong to you) unless you stay with the company for a minimum period of time, such as 3 years. Even so, the employer match is a great deal and you should get it.

What if you have high interest rate credit card debt and would like to pay it off? Should you do that before investing in 401(k) to get the employer match? No. The return on the employer match is better. Cut back on your spending in order to pay off the credit card debt.

What if you want to save up money outside a 401(k) in order to accumulate a downpayment for a house? It's good if you're trying to put a downpayment together, because these days, with the messy state of the mortgage market, people who have a downpayment are more likely to be approved for a mortgage. But the employer match pays a better return than buying a home. So get the employer match; and try to save a downpayment some other way.

What if school loans are like thunderclouds hanging over your head and you want to get rid of them as soon as possible? You'd get more value from obtaining the employer match than from paying down school loans a little faster. If the school loans are driving you crazy, ease up on unnecessary spending. But don't cut back on the best retirement financing deal most people will ever get.

The employer match is about as close as most of us will ever get to free money. Don't pass it up. If you have access to a retirement account with one, contribute at least enough to get the match; and more if you can, since retirement isn't getting cheaper.

Strange News: Drilling for natural gas begins at Dallas-Fort Worth International Airport-- But will they share the wealth with the passengers? How 'bout some free peanuts, at least?

No comments: