No. of Recommendations: 0
TchrP wrote,
<<Treat your employer's 401(k) contributions as part of your total compensation. In evaluating the portfolio, therefore, you include them with your own contributions (unless you're from Beardstown, I guess).
In other words, getting an employer's match is not an investment return; it's a tax-deferred
bonus.>>

TMF Pixy replied:
<<No, no, no, no! While it may be tax-deferred, it's definitely NOT a bonus. It's a return on your
money for that investment.>>

Piz asked:
<<No, no, no, no! While it may be tax-deferred, it's definitely NOT a bonus. It's a return on your
money for that investment.>>

And DrBear now adds:

Everybody is right! No seriously, it depends on WHAT you are trying to analyze:

If you are trying to determine whether you should fund your 401(k) or some other retirement vehicle (IRA, etc.) then include your employer's match money, because that is part of your total return. Any analysis which seeks to look at total return inside vs. outside your 401(k) should include the match.

A quick (extremely simple) example:
Contribute to 401(k) or IRA for 1998? Assume contributions (and matches) are made on 1/1/98

IRA:
-$2K contribution (max)
-15% expected return
Beg Value: $2000
End Value: $2300
Total Return: 15%

401(k):
-$6K expected contribution
-10% expected return
-employer matches 50%
Beg Value: $6000
End Value: $9900
Total Return: 65%

Obviously, the 401(k) looks better, even though the instrument your funds were invested in had a lower return. That 50% match puts you way ahead of the IRA.

On the other hand, if you are simply trying to determine the return of the funds you're putting your 401(k) money into, then it doesn't matter whether or not you include the employer funds, because these would be included regardless of the instrument(s) you plop your 401(k) contributions into.
Print the post  

Announcements

The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement