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Finance For Dummies

Finance For Dummies offers personal finance information on investing, retirement investing, finance, insurance, credit cards, loans and more. Personal finance education is our goal.

Monday, July 31, 2006

The Importance of Employer 401k Match

One of the most important benefits of investing in a 401k plan at work is the potential for your employer to match a certain percentage of your contribution. Many 401k allow employers to contribute to the particpant's account, but not all. The amount is usually represented as a specific percentage of the your contribution to the plan. For example, if your employer has a 50% match then for each dollar you contribute your employer would contribute $0.50 to your account.

If you take that example and draw the amount in your account over 20 years with and without a match you will see the huge diiference between the two. If you put in $100 at the end of each month into your 401k and your employer matched 50% the growth over 20 years (1980-2000) would almost be $240,000. Whereas it would be almost $160,000 if there was not employer match.

So take advantage of your employer's match and put in as much as you can because it is free money and the growth of that money will help you towards your retirement.

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