In a recent dialog on The Simple Dollar, I focused on the fact that MMA appears not to address whether or not one receives any type of matching funds in their 401(k). First, let’s talk a bit why this is so important.
Many employers offer a match of your contribution, as high as dollar for dollar on the first 5-10% of your income deposited. In dollars, this can mean $8000 company match when you put in your $8000. But remember, the 401(k) is funded with pre-tax dollars, so you see about $6000 (I assume a 25% tax bracket) less in your pocket, but now have $16000 in the 401(k) account. You can see that over a few years, the money adds up quickly.
Yet, there are those who oppose even something that would seem so obvious. The poster whom I was engaging with offered, “Do you guys not realize that there are people today who have less money in their 401(k) investments than they did 3 years ago even with matched company funds? That’s less net money. Got it?” Yes, I got it, alright. I got the fact that most MMA users are so fixated on their one and only goal, to pay down the mortgage as fast as they can, that they will ignore what we all view as ‘free money.’ As I discussed on Tuesday, one should not confuse the tax deferred account with the potential investment choices contained inside it. Those who were properly diversified are certainly ahead, when the match is included.
Until next week.