Your #1 Financial Goal? Obtain an Employer 401k Match

6a0133f3fc5805970b01539020cb2e970b-320wiAs a family child care provider you may have a number of financial goals: buy a car, get business liability insurance, set up an emergency fund, pay off your credit card debt, save for your child’s college education, and so on.

There is one financial goal, however, that is more important than all the others.

Your spouse should contribute enough to his 401(k) or 403(b) retirement plan so that he gets the maximum employer match.

Not all employers offer retirement plans and not all match contributions from their employees. Employers who do offer a match will typically offer a 1% to 3% match of the employee’s salary.

For example, let’s say your spouse earns $40,000 a year and his employer offers a 2% match. This means that if your spouse contributes 2% of his salary ($40,000 x 2% = $800) in a year, his employer will match it by contributing another $800 to his retirement account. This doubles the balance in your spouse’s retirement account!

If you spouse only contributes 1% of his salary ($400) his employer will only match the $400.

Therefore, you should make sure that your spouse contributes enough to his retirement plan, to take advantage of the maximum employer match that is available. This should always be the first financial goal that you set as a family for the year. It’s more important than any other financial goal because there is no other investment you can make that will immediately double your money in one year.

If you are single, or your spouse’s employer does not offer a retirement plan that matches employee contributions, you should establish your own IRA and contribute as much as is allowed each year. I will be writing future articles on the different IRA options.

A 401(k) plan is offered by for-profit companies; a 403(b) plan is offered by non-profit companies.

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Money Management GuideFor further information, see my Family Child Care Money Management and Retirement Guide.

Categories: Money Management & Retirement, Retirement Planning

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5 replies

  1. What about the millions of people who lost big with the economic collapse and lost a HUGE portion of their 401K’s? Unless there’s a guarantee that your employer won’t go under, renig on the 401K, or that the government won’t botch it up, it seems to be an incredibly risky investment. Maybe you can explain more about it, because I know too many people who lost more than half, if not 3/4, of their 401k’s!

  2. If your employer goes under your 401k is protected because it’s in your name. Investing in the stock market for the long run is still a good idea. Those who kept their money invested during the latest crashes have recovered. I’ll be writing more articles about how to invest wisely.

  3. Interesting article, it really makes someone think. I always like to read thought provoking articles about things like this. Keep the great posts coming. Thanks again for sharing it with us.

  4. Your articles are very helpful.I do want to know how my new child care business will affect my husband at tax time and how I am supposed to file.

  5. My husband’s 401k and my 401k rollover lost a significant amount during the crash. He continued to contibute the max amount of 15%. It is now regained all and more from what it had lost. People must make sure they are diversified! If your compnay has stock options, don’t also load your 401k with company stock. That was a bigger reason as to why when the company went under, so did many of the employee’s 401ks. They were investing too heavily in their own company’s stock. It’s all about diversification.

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