{"id":30430,"date":"2023-10-29T04:06:20","date_gmt":"2023-10-29T04:06:20","guid":{"rendered":"https:\/\/isafespend.com\/personal-finance\/retirement\/do-you-think-you-cant-afford-a-401k-check-your-w-4\/"},"modified":"2023-10-29T04:06:22","modified_gmt":"2023-10-29T04:06:22","slug":"do-you-think-you-cant-afford-a-401k-check-your-w-4","status":"publish","type":"post","link":"https:\/\/isafespend.com\/?p=30430","title":{"rendered":"Do You Think You Can\u2019t Afford A 401(k)? Check Your W-4"},"content":{"rendered":"
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If you are eligible for a company 401(k) plan, but haven\u2019t signed up because you can\u2019t afford to contribute to the 401(k), I have two questions for you: Does the plan have a match? And, do you get a tax refund? If so, we need to talk.<\/p>\n

I\u2019d also like to talk with all of the people who participated in the CNBC Your Money Survey in August who do not contribute any<\/em> money to an available 401(k) or employer-sponsored plan (41% of those surveyed).<\/p>\n

If your plan offers a match and you get a tax refund check, you are missing something important. Consider this: You have the power to essentially turn that refund check into a 401(k) contribution to earn that match, in the best case, without lowering your paycheck.<\/p>\n

Let me show you an example.<\/p>\n

The \u2018Cost\u2019 of a 401(k)<\/h2>\n

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Let\u2019s take a hypothetical \u201cSharon,\u201d 25, who decided she cannot afford to contribute to her 401(k) at work. Her paycheck just doesn\u2019t go far enough to make a contribution possible. She hasn\u2019t even considered the plan\u2019s generous dollar-for-dollar match before making a no-go decision, because there is simply no extra money left after paying bills.<\/p>\n

However, Sharon gets a nice tax refund every year, which she sees as forced savings. Each year, she dutifully deposits her refund check into her savings account in order to save for retirement.<\/p>\n

By doing so, Sharon is missing out on the company\u2019s match and the other benefits of participating in her 401(k).<\/p>\n

But probably more importantly, she is not aware that its up to her and her alone to make a change \u2014 and I can\u2019t fault anyone in Sharon\u2019s position. 401(k) education needs improvement. I must say that I have not seen any 401(k) educational programs or heard of any employers who help people in Sharon\u2019s situation. No one told her about the interplay between tax refunds, tax withholding, paychecks, 401(k) contributions, and company matches. She is not aware that she could have used sage advice before making the costly mistake of not taking part in her company\u2019s 401(k).<\/p>\n

Avoiding Mistakes<\/h2>\n

Are you in Sharon\u2019s situation? Are you making the same mistakes?<\/p>\n