John Bullis: Don’t lose out on free money

If there is a retirement plan where you work and the employer offers some “matching” contribution, try to be sure to save enough of your wages to get the maximum employer contribution.

It is estimated about 25 percent of employees don’t take advantage of the employer matching contributions. That is like walking over free money on the sidewalk. I think it might be more than that of folks that don’t take advantage of this special way to save.

The normal retirement plan is important for you to save for your own retirement. Most retirement plans are a contribution type plan where you save by contributing some of your wages to the retirement plan. Many employers encourage saving that way by offering some matching contribution as part of the plan rules.

Some employers will contribute a percentage of your wages to the retirement plan for your account, but only if you also do contributions from your wages. For example if your wages are $40,000 a year, the employer might contribute 3 percent or $1,200. That does not sound like much, but if it is done for many years, it really adds up. And you know compound interest is one of the greatest financial ideas around.

If you don’t contribute at least 3 percent, then the employer matching contribution is reduced. That is why the employer contribution is called “free money.” What you save is not gone, it is yours. Your taxable wages are reduced by your contribution, that saves income taxes. The tax savings are sort of “free money” from Congress to encourage you to save for your own retirement.

If you just can’t save on your own, having a retirement contribution deducted from your paycheck can be a help. That sort of forces us to live on the net check and usually that is an adjustment that can be done.

Start saving early is by far one of the best ideas. The longer the savings are held in the tax deferred retirement account, the more earnings help grow the amount for you.

After the account is started, be sure to invest the savings so it earns money in a way that allows you to sleep at night. Most folks will have some stocks (mutual funds) and if you are not very young, some bonds (mutual funds). I favor the index mutual funds because they are diversified and have very low expenses.

If you have any questions about your possible participation in the employer retirement plan, ask for details. Employers tend to value employees that are savers.

It is not easy to establish a new habit. If you have to start with just 1 percent contribution for now, do that. Then increase the percentage saved as time goes by.

This is an area where you have to do it, no one else can really do this for you. Try to get that free money, starting this year!

Did you hear? “The choices we make define the quality of our lives.” — Anonymous.

John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs.


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