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Ten Minute Tip: Join and Contribute to Your Company’s 401K

Are you employed? Does your employer offer a 401K (or 403B, or any number of similarly acronym’d up retirement plans)? Does your employer offer an employer match/contribution on dollars you contribute? If the answer is yes to all three, you better be contributing to your 401K. If your employer doesn’t offer a match, you should still be contributing to your own retirement though it’s not as pressing. It should take you less than ten minutes to sign up for your 401K unless your company is stuck in the stone ages. Give your HR a call or check out your company Intranet for a 401K enrollment form, fax/inter-office mail that baby over to HR/Benefits, and you should be all set. As for the what funds you should divvy up your hard earned money into, just wing it until the account is setup. You can figure all that stuff out later, time is of the essence!

For many recent hires, this is a non-issue because the Pension Protection Act of 2006 made employers auto-enroll their employees. So, for some, this tip took less than ten minutes! The next step is making sure you’re contributing enough. The law says that you’re auto-enrolled at 3% and then every year after that you’ll be bumped up 1% until you get to around 6% to 10%. Now, employers are not required to do this (they get out of some discrimination testing if they do), so there’s a chance your employer hasn’t done any of this (double check!). Also, this is what the employer must do, you can adjust it up or down or sideways as much as you want.

Let’s say your employer offers to match your contributions 50 cents to the dollar up to 3% of your salary. That means if you contribute 6% of your salary, they kick in 3%. Well, if you’re auto-enrolled at 3%, that means you’re leaving 1.5% of your salary on the table because you didn’t do anything. 1.5% doesn’t seem like much but:

  1. It’s free.
  2. In 40 years, with interest and years of 1.5% of your salary, that’s going to be a lot of money.
  3. It’s free.

So, make sure you’re enrolled and make sure you’re contributing enough. If you saw a twenty on the sidewalk, you wouldn’t just walk by it would you?