Easy money is money that is up for grabs. You have to do either the bare minimum work or no extra work to get it. A guaranteed 100% instant return should sound great to everybody. By now, you may be thinking, where do I sign up?
It comes in the form of your employer 401k match. Leaving easy money on the table is one of the great sins as a reader of filledwithmoney. I forbid you from doing so. A 401k contribution has instant and guaranteed 100% return on investment the same day you put the money to work.
I guarantee Warren Buffett cannot earn a 100% risk-free return on investment in a single day. Be even better than Warren Buffett, one of the greatest investors possibly till eternity.
On top of the guaranteed 100% return on your money, the added bonus is that the returns are tax free. Some people argue that money in your 401k is less valuable than the money you have in your hand. The argument is that you can use the money in your hand today. Retirement accounts can’t.
While it does make sense, you are getting paid very well for the lack of liquidity. You are delaying paying taxes later down the road. Long-term capital tax rates range from 0 – 20%. It is possible to have a 0% capital tax rate, but let’s plan to be placed in the higher tax brackets.
Your yearly returns will be tax-free in a 401k account, guaranteed. Without going through the hassle of carefully planning your budget or finances. At the very least, until you retire. That is why it is worth it to park as much cash as you possibly can in a tax-advantaged account.
A Shocking 20% Leave Easy Money on the Table
One in five Americans don’t contribute enough to their 401k to fully take advantage of their employer match. The horror, this is worse than any other scary movie I’ve ever seen.
One business idea that I did think of was to take advantage of this opportunity. The ones who don’t contribute fully to their 401k at least up to employer match value liquidity above all. In exchange for liquidity I did think of solving that problem by offering discounted cash upfront in exchange for future dollars. Just a thought so far.
I am very thankful that my employer offers not a 6% match but a 9% match. It is ridiculously great. Though I have seen my friends work for companies that offer anywhere between 15 – 100% match, I am happy with a 9% boost to my earnings.
I will always pick the job offer for $80,000 salary with a 6% 401k match versus a $77,798 salary with a 9% 401k match. All. Day. Long. Tax-advantaged accounts are extremely valuable. On top of that, you’re saving money on the salary by contributing pre-tax dollars, as well.
It’s disheartening and saddening to see so many Americans passing on compensation. These workers are deliberately and purposefully choosing to decline cold, hard cash offered to them. The cash is already in front of them and all they have to do is grab it.
This is one of the many reasons why income inequality is growing. By the little guy actually declining dollar bills to be transferred from the pockets of the rich to their pockets.
Aside from a 401k, health savings account is another insanely and ridiculously powerful retirement account that people don’t take advantage of. A triple tax-advantaged account? There’s nothing like it!
Practicing What I Preach
It would be foolish of me to have one standard for you while having a completely different standard for myself. I practice what I preach, 100%. I’ve fully taken advantage of the easy money that’s been offered to me. Since 2017, I have maxed out my 401k account without fail. As long as I have a job I will continue to max out my 401k account. No excuses.
When I first started out my job, it was actually a half-year and I failed in maxing out my retirement accounts. However, I contributed 50% of every paycheck to my 401k, which came out to be around $12,000. Every year afterwards, I contributed $18,000 – $19,500 with zero exceptions or excuses.
I know for a fact if I contribute the max every year and let it ride into the market, I will be a 401k millionaire. To be honest, I don’t expect to need my 401k/HSA funds at all when I retire. However, it’s still nice to have a cushion.
My 401k and HSA accounts total approximately $170,000 or so. That’s the majority of my net worth, approximately 59%. Even so, I am very comfortable with the allocation and I will continue to be comfortable.
To be honest, I have no need to contribute more to my 401k. At a 7% average yearly return for the next 40 years, I know it’ll grow to around $2.5MM. More than enough to retire and live comfortably on, even with inflation 40 years out.
It doesn’t hurt to have more than less so I will continue to max out my 401k. It’s a can’t lose situation.
Are You Still Skeptical of the Magic?
Mitt Romney grew his tax-advantaged IRA account to $102MM. This was in 2012, too, so who knows how much more it grew. He certainly does not need to make more or work yet chooses to anyway, very interesting. The rich still get to have more than needed, to have excess.
Regardless of which, there is no doubt that the rich knows how great the tax-advantaged feature is of having a 401k, HSA, or IRA. Your company pays for a part of it as part of your compensation package. Never, ever leave any part of the employer match on the table. It’s the easiest payment to be ever received from someone else.
One of my biggest regrets is not educating myself on the IRA. I currently do not have one and will not open one up in the near future. The biggest setback for me was choosing which IRA broker to go with. I also am not educated on the income thresholds.
Learn from my mistakes and open both an IRA and a 401k. Your future self will thank you for it. It’s better to be financially protected during your retirement than to not be financially protected. If there is one lesson that I want you to take from my blog, it’s that. To contribute to your retirement funds.
At the end of the day, it is up to you to max it out or not. It’s fully encouraged for you to do because it’s one of the easiest ways to become a millionaire. 401k millionaire is almost like cheating because of how easy it is to be. Take the easy way out than the hard way out.
