A 401(k) match _is_ free money though. When you leave the company, you can just cash out the account - the penalty will still probably be less than the match gave you, so you come out ahead.
Of course, it's best to just let it sit in retirement accounts until you can take a qualified distribution.
Only in the sense that you can optionally not accept it. But it still is part of your compensation, as is in effect, even the "employer-paid" portions of healthcare and other benefits. From the perspective of the employer they are part of your costs and the direct payments reflect that, likewise you would need to pay those costs yourself if you were self-employed.
So it's a semantic thing, employees know it's not literally free and comes from their employer but it's free in the sense that it's in excess of their negotiated salary.
> Compare this with the self-employed who seem to "obsess" over taxes, despite barely paying a higher rate.
I'd wager that it's because it's hard for me, as an employed person, to fuck up my taxes so badly that the tax authorities would come gunning for me; most of that is handled by my employer's other employees. I just fill out a pretty basic form, and count myself done.
Where as if I were self employed, I'd have to worry about quarterly filings (I think?), and the knowledge that there's absolutely nobody but me who's checking up on things.
You are required to have quarterly filings. This happens so infrequently with self-employed persons that the IRS has a special section for if you were supposed to file quarterly, but didn’t.
it's not super hard as a self-employed person, if you don't want it to be. Just setup your business as a real company and pay yourself via payroll instead of pass-through
There may be other tradeoffs, but there may also be other advantages. the original point of just being aware of both sides of the coin is a big part of it, most people don't look at the deductions on their paycheck. hell, a significant number of people think their entire tax bill is just what they have to pay in April
The above comment is just an incoherent, off topic rant. Ignore it - it's verbal diarrhea.
Employer match is "free money" (there's no "gotcha" other than vesting schedules) and 401k is a part of the American tax code whereas this is an article about Canadian payroll.
I presume they are complaining about the fact that employers actually budget their match it as part of total compensation or whatever. So it's "really just a part of your salary." Or perhaps they are just mad they have to put the match into the 401k and can't opt to redirect that part of their salary to a non-tax advantaged account. Who knows?
Take the perspective of the employer. They receive cash from the sale of goods and services. They have to divide up that cash to spend on the ingredients needed to run the business: real estate rent, supplies, maintenance, and labor. Labor can be subdivided into categories like salary, bonus, medical insurance, 401(k) plans, etc.
In the status quo, 401(k) plans exist and have certain tax advantages, so employers feel compelled to make contributions to the plans. But if you pretend there's a universe where 401(k) doesn't exist at all, then the employer will just have to allocate that cash towards something else - like paying higher salaries, buying better office facilities, or whatever.
Here's a real-life example from a ~10-person startup that I worked for. The company was debating about whether to purchase group health insurance benefits for us. The employees casually talked about how much they actually spent on healthcare each year, and we realized that our average spending was significantly lower than the average cost per person that the company would pay to enroll in the plan. So we agreed to decline the plan and asked the company to focus on cash compensation.
Remember, money is fungible and there's no free lunch.
I'm wondering the same thing. The money has been going into my 401k for decades. When I start using it after retirement when I am 70 or so years old, is there some gotcha I'm not aware of?
No, the only real "gotcha" is some employees have their match on a vesting schedule and you lose the non-vested portion of the money if your employment ends before the vesting schedule. These are typically not that very long - a few years.
> Biggest scam of the century that governments have outsourced tax collection.
Not sure if this is what you were getting at but in Pennsylvania, US, the school and local taxes are collected by a variety of law firms / tax firms with no relation to the government because they are entirely private firms that have been given full reins.
So the municipal tax firm for county A may not be the same for county B. What makes this even more terrifying is you only learn this when you get your first "pay us or else" letter from a law firm that essentially is just "we are your municipal tax authority, pay us $600 because we have calculated you are wrong".
And apparently they are frequently wrong and assume best case scenarios in their favor. There's a huge collection of "Is this a scam?" questions about it online. For an example of how terrible they are, if you move to PA in May, there is a very good chance they'll demand taxes for the year previous to when you lived there. That's what happened to me and apparently many others.
> The phrase "out of sight, out of mind" doesn't seem to do it justice.
Which works the opposite way as well: people not setting aside enough, which would probably happen if it was not pre-deducted. Just ask then-musician / now-actor Will Smith:
What part of that is bad? Don't we want a system where everything is clear to the taxpayer how much they owe and they can be certain how much they receive each pay check?
For those who care about finance and want to know - it is easy to figure out where your money is. With a 401k you do have basic choices and can monitor things pretty well. Other alternatives seem to be pensions (where the employee really can see nothing) or leaving it to each person to decide completely (which the government doesn't like because a certain amount will blow it all and then they will have to pay for them when they are old anyways)
>Even my fairly financially literate coworkers have no idea what "withholding", "W-2" and "FICA" are. They think the employer "match" is "free money" and don't understand the fundamentals of a 401k. No idea who manages the money, where it goes, etc. And I work at a hedge fund.
Considering spending 5 minutes on Wikipedia looking up those terms would give a pretty good understanding, your coworkers only do not know because the do not want to know.
