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No 401(k) Employer Match? No Problem!

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When I heard my new employer did not have any sort of matching 401(k) program, I have to admit it did kind of bother me a little bit. (their alternative is far superior, it’s a profit sharing program where they contribute a much higher amount than a typical employer match depending on their performance) However, when you sit down and think about it, not having your employer kick in a few percent of your salary isn’t that significant. Let’s say you have the typical 3% employer match and your salary is $50,000 – that amounts to $1,500 of employer match each year or a little more than $100 a month.

In comparing job offers, you should factor in that $1,500 especially since it will be growing, hopefully, until you retirement and could really be “worth” far more than the nominal dollar amount. However, sometimes we think of employer match as a general benefit and not necessarily what it’s “worth” in a dollar amount because if we did, we’d realize that it wasn’t that much money. So, in that respect the match isn’t that big of a deal. If two jobs were offering the same salary but one had a match and one didn’t, you obviously go with the free money (higher total compensation, though that’s not the official Wall Street calculation). What if one was a higher salary without match and one was lower with a match? It’s much harder there.

I’d say that you should consider other factors between those two jobs because those are important than the differences in 401(k). The environment, the people, the possibilities for advancement – those are significantly more important than a piddly match by your employer into a retirement account you likely won’t touch for many many years. Now, if the two jobs are equal in every respect, then I’m afraid you will have to resort to a coin. :)

That being said, if you have an employer match, use it! Kicking in a small percentage of your salary to get some free money. In the above example, $1500 isn’t a windfall but only a fool leaves free money on the table!

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8 Responses to “No 401(k) Employer Match? No Problem!”

  1. Chuck says:

    What do you think if the employer offers no 401k at all? How much is the extra 11k savings room versus just a traditional IRA worth?

  2. thc says:

    A company match and profit-sharing are the same thing. You should do a little research on how defined contribuiton plans work if you’re going to pretend to give financial advice.

    • Nate says:

      You should take your own advice.

      A company match and a profit sharing are not even remotely the same thing. Neither the IRS, the Department of Labor, pension plan admins, nor investment advisors agree with you on this one. As a matter of fact, the employer plan document specifically outlines both issues separately and you can have one without the other. Alternatively, you can also have a situation where a company matches what you put in AND then pays an additional profit-sharing “bonus” at the end of the year.

  3. jim says:

    The difference is I don’t need to contribute in order to receive my employer’s contribution.

    THC – If my blog offends your CFP sensibilities so much, feel free to stop reading.

  4. thc says:

    Sorry if I was brash. What you are referring to is an employer’s Safe Harbor Contribution. It allows them to escape performing nondiscrimination testing.

  5. jim says:

    Must safe harbor contributions vest immediately? The profit sharing vests 20% a year across 5 years… so would it still qualify as a safe harbor contribution?

  6. thc says:

    Jim: Sorry I haven’t been back in a few days. Yes, safe harbor contributions are fully vested immediately and no, profit sharing contributions that vest on a 5-year schedule do not qualify. Hope that helps.

  7. ReaderWithQuestion says:

    My employer has it set up so we have a PSP ER contributions but you get 100% vested after you have been here for 5 years. What if I do not want to stay with this employer for 5 years? What should I invest my money in? A Roth IRA, a traditional IRA, etc? What would be your recommendation for me? I have been here for 3 years.


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