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URL:  https://boards.fool.com/drbear-wrote-ltlta-quick-extremely-simple-10149347.aspx

Subject:  Re: How do I treat 401K employer matching funds? Date:  4/8/1998  5:55 PM
Author:  vtaeger Number:  2689 of 106116

DrBear wrote:
<<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%
>>

Note that the employer match is a one off, while the excess return on the IRA compounds yearly.

Over 5 years the 401(k) money doubles. [1.25* (1.10) ^ 5 = 2.01] This an annual return of 15%. Under these assumptions the 401(k) is the better investment only if you intend to withdraw the money within 5 years.

Traditional pension plans favor those who work at the same company for 40 years. 401(k)s favor those who change employers frequently, rolling the 401(k) into higher performing IRA investments when they change jobs.

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