The Advantages of Contributing to Your 401(k) Even Without a Match

Employees often wonder whether it's worth contributing to their 401(k) plan if their employer doesn't offer a match. After all, why would you want to put your own money into a retirement account when your employer isn't doing the same? The answer, simply put, is that even without a match, contributing to your 401(k) still has its advantages. Here's a closer look at three of those advantages.

Tax breaks.

When you contribute to your 401(k), you're doing so with pre-tax dollars. This reduces your taxable income for the year, which can lead to significant tax savings. For example, you make $50,000 annually and contribute $5,000 to your 401(k). Your taxable income for the year would then be $45,000. If you're in the 25% tax bracket, that would save you $1,250 in taxes ($5,000 x 25%). Granted, you will have to pay taxes on the money when you withdraw it in retirement. However, by then, you may be in a lower tax bracket than you are now. The money will have had decades to grow and compound - more on that below. 

Automatic Savings

One of the hardest things about saving for retirement is getting started. It can be hard to break the habit of spending every last dollar - especially when there are so many tempting ways to do so. Contributing to a 401(k) takes the thinking out of saving because the money is automatically deducted from each paycheck before it hits your bank account. Once you've set up your contribution level, you don't have to do anything else except watch your savings grow. 

Potential Employer Match

Even if your employer doesn't currently offer a match, there's always the potential that they could start one in the future. If that happens, you'll want to be sure that you're already contributing enough to take full advantage of the benefit.  For example, say your employer starts offering a 50% match on 401(k) contributions up to 6% of your salary. If you're making $50,000 per year and contribute 6%, that's $3,000 per year ($50,000 x 6%). Your employer would pay an additional $1,500 per year ($3,000 x 50%). In other words, by contributing just 6% of your salary now (without an employer match), you'd be setting yourself up to potentially get a 100% return on investment down the road!

Although an employer match can sweeten the deal, there are still plenty of good reasons to contribute to your 401(k) even if your company is offering no matching funds. From tax breaks to automatic savings and beyond, taking advantage of this retirement-savings tool is a no-brainer - even without an employer match.