Confession time - we do not follow the Dave Ramsey plan strictly. When we first started out, we were pretty strict with the plan, but we NEVER stopped contributing to our 401Ks.
At first, our reason for not stopping was the hassle of the paperwork of stopping, but the more we researched and learned about personal finance, we came to peace with the choice to contribute up to the match amount during our Baby Step 2 journey of paying down our consumer debt. As we paid things off, we eventually upped our contributions and we now contribute 15% each to our plans and I receive a 4% match. My husband receives a 3% match.
If you have a 401k plan offered through your employer, I strongly recommend contributing, even if you start small. What makes a 401k so great? Let me share my thoughts with you.
1. They are portable. Anything you put away goes with you, even if you leave your employer in the future, unlike a pension plan.
2. The contributions go in PRE-TAX, which reduces your taxable income. This reduces what you owe in taxes and reduces how it hits your paycheck.
3. Should you pass away, the funds in your 401k can be passed along to your spouse or children.
4. No taxes are owed on the 401k or it's growth until you start making withdrawals. Likely, when you retire and take withdrawals, your tax rate will be lower than when you are working, so this will be a savings. Whatever stays invested, stays tax free.
5. Many employers offer a match, which is a 100% return on investment when you invest up to the match. Where in life can you get a guaranteed 100% return?!? Really is not something to be missed.
6. Compound interest. By starting early in your career even small contributions can compound into a large amount of money by the time you retire. If this is confusing to you, take a moment to google "Story of Ben and Arthur Dave Ramsey." This is a great showcasing of what can happen over time, even with small figures.
If you have the option to invest in a 401k at your work, start today! Don't let confusion or the hassle of paperwork hold you back, sign up and get started. Even if all you do is put in 3%, start there and raise it another percent each few months.