Easy as 3, 4, 5… All About Your 401K

Would you be interested in a way to save money that doesn’t cost you anything? I mean, if I started depositing money into a savings account for you, would you accept it? Of course you would…

So why aren’t you? What am I talking about? I am referring to your 401K (or 403B) program at work. Most companies today offer these programs, so if you’re working for a company right now, chances are you have the ability to sign up. Have you?

If not, you’re not alone. An extremely low percentage of employees who are eligible for these programs actually take advantage of them. The excuses are many, like you can’t afford to have anything deducted from your pay? Or you don’t plan on staying with this company for very long so why bother? Or how about, if it’s such a good deal why doesn’t my employer tell me how good it is? Let’s look at these excuses one by one:

1) I Can’t Afford It

Awhile back, while working at another company, I was involved in putting together the presentations for our annual Employee Benefits general meeting. We had all the biggies in the company there at the planning meeting, including the company’s attorney.

Our CFO (Chief Financial Officer) had prepared a PowerPoint to show the employees that explained the benefits of using the company’s 401K program. He had calculated that if each employee would contribute 3% of his/her income into the plan, there would be no noticeable change in the take home pay of each person. Because the contributions go in pre-tax, the tax savings and small company match actually offset almost perfectly the 3% deduction.

He was very excited about showing this slide show because it was like handing the employees free money – how cool is that? But our company attorney nixed the presentation and he never got to give it (see below). But I saw it. And I was shocked at the numbers. So, try it yourself by putting 3% of your pay into your 401K plan. Your paycheck will probably not drop at all and you’ll start getting free money that you are currently giving to the government.

2) Not Staying with the Company?

So what? The account is yours. If you leave the company, you can just keep your money in their account for up to 18 months, roll it over into an IRA, or roll it over into your new company’s plan. It’s your money, regardless if you keep working there or not.

3) Why doesn’t the employer tell me how good it is?

They can’t. It’s illegal for your company to “encourage” you to contribute to your 401K account. Remember that presentation that the CFO in #1 put together? He couldn’t show it to the employees because it could be viewed as coercive or intimidating, creating a hostile work environment (giving you free money is “intimidating” and you might sue – and would probably win.)

Why? Because companies benefit by having their employees in these plans, so they aren’t allowed to tell you to join. They may abuse the privilege. So they say as little as possible, other than – we have a plan if you want it.

So, sign up. Start with just 3%. Once you find out that 3% is do-able, go to 4%, then 5%, etc. Work your way up and you’ll create a nice pile of savings without having to change your spending habits to do it. It’s as easy as 3, 4, 5…

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