As I have been listening to my list of recommended personal finance and investing podcasts, a few episodes of The Dave Ramsey Show podcast stood out. Listeners ask whether they should pay off debt or contribute to the listener’s company employer 401K match.
Here is one example of Dave Ramsey’s answer to whether one should take the 401K match or not.
I took Dave Ramsey’s advice and skipped contributing to my company’s employer 401K match of 4% for 1.5 months (3 paychecks) beginning in late May 2018 through end of June 2018.
Let me make one thing clear, I am not a financial guru, ninja, or influencer. My recommendation is from my own experience. Although I agree with NerdWallet’s piece on why Dave Ramsey’s wrong, I am too lazy to do the math myself and verify. All I know is getting literally free money makes me sleep better at night.
I went back to making sure that I get at least my company’s 401K match. In my case my company matches up to 4%. The contribution percentage does not matter as much as your company matching any 401K contributions. whether 1% or 8%.
My situation is this.
I have $34K in student loan debt. I had contributed 12% automatically to my 401K/Roth IRA. I then completely eliminated any contributions (0%) ultimately passing on my company’s 4% employer 401K match for 3 paychecks (1.5 months). I took that extra money and put it towards my student loan debt.
However, emotionally and mentally I could not get over the fact that I was leaving money on the table. A company’s 401K match is literally free money. I could not get that out of my head.
I decided to contribute to my company’s 401K match again, but instead of 12% like I was contributing previously, I went to the maximum 4% company 401K match.
I would much rather take advantage of a company contributing free money to my retirement account and find ways to increase my side hustles or find additional cost cutting savings.
If your company does not offer a company 401K match, then what I would do is hold off making any retirement contributions and use that money to eliminate that debt. In my case I was contributing 12% in which 4% was getting matched by my company’s 401K match benefit. The remaining 8% I was contributing before has been going towards my massive student loan debt.
My mindset was only about losing out on free money because of a company 401K match thus my conclusion: always contribute to get your company’s 401K employer match.