Planning for Retirement

 

matching your contributions to some degree. Tom, your employer matches your contributions up to three percent of your pay. The mistake you're making is that you are walking away from free money by not contributing."

"I'll bet even three percent of Tom's pay can amount to something over the years once you figure in compound interest," Cathy chimed in.

"Cathy's right," Roy acknowledged. "By the time you retire, that three percent that you're walking away from now could translate into a year or more of income depending on how it's been invested."

"Gee, I never thought of it that way," said Tom, clearly pondering this fact.

"Remember our edict to seek the least painful way to save?" Roy asked. "What could possibly be less painful than free money?"

"Great! Who should we talk to? Our personnel de-partments?"

"Sorry, Dave, the Board of Education doesn't offer a 401(k), but your idea of talking to your personnel depart-ment was a good one. All employees should do that to find out whether a 401(k) plan is available and, if so, the important details of it."

"What are the contribution limits?" an interested Tom inquired.

"The law allows you to have a salary reduction of ap-proximately nine thousand five hundred dollars directed to a 401(k), and that contribution is not taxed. That limit, by the way, is indexed to inflation and, therefore, is increased every few years. In addition, your employer may, and as I mentioned earlier, usually does, contribute on your behalf. The employer's contribution is also subject to limits, of