Americans Lose $30 Billion a Year by Under-Utilizing 401ks

AARP recently listed several money traps people fall into. The one that stood out to me was the free money people let slip through their hands simply by not taking the full employer 401k match. The details:

Here’s a $30 billion mistake: that’s how much matching funds Americans miss out on each year because they aren’t saving for retirement through their company’s 401(k) plan.

If your employer matches any part of contributions to a 401(k) —and four out of five plans do—sign up and take full advantage. It’s free money on top of a tax break, since what you set aside isn’t subject to income tax.

The boost the match gives your retirement can be astounding. Say your company offers the most common match of 50 cents on the dollar on anything up to 6 percent of your salary. If you make $68,000 a year and earmark 6 percent for your 401(k), you’ll get $2,040 in matching funds. Over a 20-year span at an 8 percent average return, you’ll have about $300,000—and more than $100,000 of it because of the match. Who can afford to leave that kind of money on the table?

Indeed. Free money for the taking. I certainly hope no one reading this is in the $30 billion group, but if you are, you need to make plans immediately to get yourself as much free money as you can by saving in your 401k to get the full employer match.

Comments

[The Finance Buff]

So where did the lost $30 billion go?

- They spent it buying stuff. Companies made more sales, more profit, employed more people. Stock market went up ...
- Companies didn't have to match it. Savings fell to the bottom line, employed more people. Stock market went up ...
- Uncle Sam received more taxes. The national debt didn't have to go up as much ...

Seems these Americans are our unsung heroes! What if they start fully utilizing their 401k's? Consumer spending down, corporate earnings down, tax revenue down ...

[Anon]

It gets worse! They not only gave up the match by turning down the best deal they'll ever be offered - if they have any savings, they also will pay a lifetime of extra taxes unnecessarily. A common misconception is that 401(k)'s are merely tax deferred - they are much better than that, actually tax exempt in that no tax is ever paid on the earnings on the after tax money. Only your original salary ever gets taxed, not the money you make later by investing your after tax salary. The way that the taxes on your salary are collected later on withdrawal is so confusing that almost everyone fails to grasp that to the penny, just like Roth IRA's, EARNINGS on the after-tax money in 401(k) plans are NEVER TAXED! Really!!!