There must be good reasons why nearly half of American workers don’t contribute to their employers’ 401k plan. Here’s five of them:
“I’ve got bills to pay.”
Yep. Bills to pay is a good reason. Except for the fact that there will always be bills to pay.
“I know that, but I’m barely making the minimum payments on my credit cards!”
Oh. That’s a problem, but not a good reason for avoiding the 401k plan.
If you’re barely making the minimum payments you are headed for bankruptcy, and guess what? Money that you put into a 401k plan is protected from creditors! That means that the money you squirrel away into the retirement plan will survive your impending financial collapse.
“I don’t trust the company.”
Well, maybe there’s other problems with your employment, but rest assured that all 401k plans are covered by ERISA, the Employee Retirement Income Security Act of 1974. The funds must be held in an account separate from the employer, and while the boss may be listed as the trustee on the plan, they cannot access your individual funds.
They can however control the actual investments in the plan, but in most cases, they leave the selection of the funds to a registered fiduciary under section 3(38) of the Act. If they don’t, they can be exposed to future liability if the investment selections are inappropriate or misleading in their use.
“I don’t want to take free money; they already pay me enough.”
Matching contributions are not for your benefit.
Every plan gets tested to see if it is “top heavy,” providing disproportionate advantages to the big income earners. If the workers don’t get much out of it, the managers aren’t allowed to get much either. So, they add money to the accounts of the rank-and-file employees to allow the big shots the biggest possible tax deductions.
Help the bosses out. Take the free money.
“I’ll only have to pay taxes later.”
You don’t know what the tax rates will be in the future, and you can save on taxes now, which means that more money can grow tax deferred until you decide to take it.
Or there may be a Roth option if paying taxes now isn’t a problem, allowing you to never pay taxes again on the money contributed.
“Delaying gratification is un-American.”
The eligible workforce is split almost down the middle on the 401k participation decision. As a country, we seem split down the middle on almost everything these days, so why shouldn’t we split on this subject, too?
Ultimately, it boils down to your ability or inability to forego spending today in favor of saving money for later in life.
Give us a call if you’ve got questions. (We’re not always this snarky.)
This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.
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