How to instantly double your 401(k) contributions

It’s never too early to think about retirement, and the economy does not seem like it will be getting better any time soon. Getting the most out of any retirement plan just makes good sense. But a new study suggests many 401(k) contributors are missing out on an opportunity to double their contributions.

30 percent fail to get matching funds

The newly released study from the insurance consulting firm Aon Hewitt showed that nearly 30 percent of 401(k) participants are failing to contribute enough to receive matching funds from their employers. The study looked at 3 million 401(k) contributors whose plans provide employer-matched contributions.

Young are largest violators

Independent securities regulator FINRA analyzed the data and found that young 401(k) contributors, 20 to 29, constituted the largest group of violators. Most of the other contributors who are missing out on matching funds, the analysis showed, were simply not aware of the provision.

FINRA executive Gerri Walsh said:

“Free money is free money — it’s a good thing. Putting in a little more will give you a lot more.”

Retirement burden on the employee

A 401(k) is a savings account set aside for retirement. The name refers to a provision in the Internal Revenue Code. In most cases, a contributor is unable to draw from the account until age 59 and a half. Since the 1980s, 401(k) plans have become a common part of an employee’s benefit package. And often the plan requires employers to match employee contributions over a certain level, dollar for dollar.

The employer-sponsored pension program is all but gone in the modern workplace. The 401(k) arose as part of a general shift in the last several decades to place more responsibility for retirement on the employee, and less on the employer. Matt Drinkwater, of LIMRA Retirement Research, said:

“The responsibility for retirement security falls on individuals more than was the case for earlier generations. Despite the volume of education on this subject, people still are not saving enough.”

Why a 401(k) is a good idea

Clifton Linton, writing for 401Kafe, offered some reasons why participating in a 401(k) is a good idea:

– A 401(k) makes regular savings automatic.

– 401(k) contributions are sheltered from taxes until they are withdrawn.

– If you leave your job, the 401(k) money stays with you.

–  Social Security will probably not be enough to cover your retirement.

– And, of course, because with a 401(k) you can take advantage of any employer matching plan to instantly double contributions.

Sources

Daily Finance 
FINRA 
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