This article is for anyone that have not started their 401K or stopped contributing to their 401K for a number of "Good" reasons. My hope is that at least one person will read this and realize they really need to contribute to their 401K plan.

Good Reason 1:

"My company doesn't have an employer match program so it's really not worth it."

Breakdown:

Just because your employer does not provide a percentage match of your 401K contribution does not mean you should not save. Since, all contributions to a 401K plan are before any taxes you are giving yourself free money with each dollar, in a way. The money you put into the 401K is allowed to grow at its full value. This means none of the money is taxed before being deposited into the 401K account. If we were to take after tax dollars, roughly at 25%, then our after tax dollars are really worth about .75 cents for each pre-tax dollar.

What does this mean to you, let's take a look.

The employer matches 10% of personal contribution, with an annual salary of $35,000 and personal 401K contribution of 5%, and the 401K returning an average of 8% per year on investments.

$35,000 \ 26 weeks = $1346 every two weeks.

5% of $1346 = $67.30

10% of $67.30 = $6.73

In looking at this we are looking at roughly $7 dollars that is causing people to not invest because it's not worth it. I usually hear this from the younger people in the work force. If we were to calculate the amount of money that would have been saved in the four years with an annual salary increase of 4%, it would be approximately $8700.

If the employer contribution is added we then see approximately $9500, an added $800. Basically, a person will miss out in saving nearly $9K just because, "My company doesn't have an employer match program so it's not really worth it."

Good Reason 2:

"I can't afford to have money taken out of my paycheck."

Breakdown:

I understand everyone's situation is different but for most people that work there are things that we could cut out or spend less. This scenario is for the people that can truly spend less just by being more aware of what they are spending their money on. For example, going out to lunch everyday or buying coffee every morning is not a good way to spend your money if you are not saving.

Let's take the above scenario and do the calculation of how much money we would actually miss from our paycheck each week. Based on this we should be able to allocate some kind of percentage to our 401K plan.

In this example we will assume a marital status of single and number of allowances is 2.

Without 401K Contribution:

Gross Pay: $1346

Take home pay: $1112

With 401K Contribution at 5%:

Gross Pay: $1346

5% of $1346 = $67.30 deposited into 401K

Take home pay: $1054

As we can see here $58 is the actual amount we would see out of our paycheck. If we learn to live without an extra $100 per month we would easily be able to save nearly $9000 in four short years.

Good Reason 3:

"Once I put my money in 401K it's locked in and I can't get my money until retirement."

Breakdown:

In a way, this would be a good reason why someone should put money into a 401K plan. We all know when something is readily accessible we have the tendency of convincing ourselves that we will only borrow for a short time and we will replace right away. Of course, very few of us are really able to do this and sometimes we end up excusing ourselves by thinking well it was mine to use anyway, so it was worth it.

Yes, it is true that taking money out of our 401K plan can be very painful and filled with penalties. Many 401K plans have loan features and early hardship withdrawals but the specifics of these plans should be discussed with each individual employer. Even with this in mind our lives do not play out the way we want and situations arise when we will need to dip into any cash reserves we have. Our 401K is something that we should only withdrawal from as a last resort.

401K's may have provisions where it allows for hardship withdrawals which include

• Un-reimbursed medical expenses for you, your spouse, or dependents.
• Purchase of an employee's principal residence.
• Payment of college tuition and related educational costs such as room and board for the next 12 months for you, your spouse, dependents, or children who are no longer dependents.
• Payments necessary to prevent eviction of you from your home, or foreclosure on the mortgage of your principal residence.
• For funeral expenses and repair of a primary residence.

These hardship withdrawals will usually be penalized by the IRS with a 10% early withdrawal fee.

There are also penalty-free withdrawals that one may qualify if these exceptions are met:

• You become totally disabled.
• You are in debt for medical expenses that exceed 7.5 percent of your adjusted gross income.
• You are required by court order to give the money to your divorced spouse, a child, or a dependent.
• You are separated from service (through permanent layoff, termination, quitting or taking early retirement) in the year you turn 55, or later.
• You are separated from service and you have set up a payment schedule to withdraw money in substantially equal amounts over the course of your life expectancy. (Once you begin taking this kind of distribution you are required to continue for five years or until you reach age 59 1/2, whichever is longer.)

One has to keep in mind that the aforementioned types of withdrawals are just that a withdrawal. This means this money loses its tax advantage as taxes that were not paid on these funds becomes due. Also, another penalty is that your employer may not allow further contributions into your 401K until 6 months after your withdrawal. As I stated above one should contact the plan administrator at your company to find out specifics on these programs.

There is an alternative that may be available, a loan against your 401K plan. Plan loans are something that should be discussed with your employer to get the company's requirements for these 401K loans. 401K loans have these characteristics:

• Plan loans are not subject to taxes or penalties.
• You can continue to contribute to the plan while repaying the loan.
• If you leave an employer before you repay the loan then you must pay back the balance or else it will be considered a withdrawal and subject to taxes and penalties.

Good Reason 4:

"I don't know anything about investing and I don't want to end up losing my money."

Breakdown:

This is usually a better reason why people do no invest but it is still not an acceptable one. Too many times we do not delve into things because we do not understand but yet here we are with people using a PC to get onto the internet, using our mobile PDA phones etc. Who would have ever thought our society would become so technical. If anyone can read this HUB then anyone can learn to invest in your 401K. Most company 401K plans are administered by large brokerage firms who will provide guidance on how you should invest your money. If you do not have access to this then I know that Fidelity have webinars and also free investment workshops that anyone can attend. (I am not affiliated with any brokerage.) Also, there is a ton of information on the internet that people can utilize. If all else fails ask family or friends on how you should invest or help you go over different types of funds to find the best ones for you.

I look at this situation in this light. People would be willing to jump through hoops, self-educate, ask for advice, research on the internet, research using books etc. just to purchase a home and from what I have read we usually keep it for 3-5 years before we move. This is usually considered one of our biggest lifetime purchases. If we are able to learn the process to do this, then spending some time to learn how to invest in our 401K, which has a large impact on the rest of our life, is time well spent.

I know there are many other "Good" reasons why we can't invest in our 401K just yet but one should really take a moment and reflect on what kind of lifestyle one wants to live in the future. I will leave you with these numbers to ponder on why starting now is always a good time.

Salary $35,000 with a 5% contribution starting at the age of 23 until 65 with no employer match, 4% annual pay raise and a 8% annual return = $919,163

Salary $60,000 with a 5% contribution starting at the age of 35 until 65 with no employer match, 4% annual pay raise and a 8% annual return = $533,346

As you can see starting early is very important but even if you do start later it is important to just start.

If you anyone is interested in just checking how much your paycheck would be affected by your 401K contribution check out: http://finance.yahoo.com/calculator/career-work/pay-02

If you would like to check out how your 401K would grow then check out:

http://www.bloomberg.com/invest/calculators/401k.html

I hope this helps someone in deciding to start their 401K and happy prosperous savings.