Good Financial Reads: The 411 on 401(k)'s

Most of you reading this likely contribute to your employer's 401(k) plan. And a good percentage of you also receive matching contributions from your employer. Or if you own your own business, you might contribute to and also be responsible for the matching contributions. I imagine you've heard these employer matching contributions referred to as "free money". Sure, we can call it that and if it feels good, do it. If you aren't taking advantage of your company's match you're leaving money on the table.

401(k)s are the most common type of savings plan offered by employers. You’ve heard it before – make sure you save money into your 401(k)! The more money you make, the more you should contribute into your 401(k), right? Maybe not.

Most employers offer some type of match on your contributions. Let’s say you make $100,000 and your employer matches your contributions up to 3% of your salary. This means if you contribute $3,000 to your 401(k), the employer will also contribute $3,000 to your 401(k). This is literally free money, or viewed another way, a 100% return on your investment.

The coronavirus pandemic has led to huge amounts of financial upheavals in the business world. It has sent shockwaves through employer’s and employee’s pockets, and if you are anything like the tens of millions of Americans in dire financial straits right now, it might have you worrying about your retirement fund.

With a lot of companies having to cut costs just to simply get through each day, you can bet every manager is looking at the best cost-cutting measures to make it. An appetizing option is freezing its 401(k) matching contribution plans, taking away matching employer contributions from its workers’ funds.