Finances & Money

No Employer 401k Match – Should you still contribute?

This tax season, I was quite surprised when I found out we weren’t getting the $5,000 tax refund we got last year. Actually, we owe about $1500 (federal). What happened?

1. We (combined) earned about $X0,000 more from 2005 to 2006 because of various raises and job changes
2. We didn’t have as many deductions to lower our taxable income

Some of my own history

I worked with my first employer out of college for 4 years. I contributed to my 401k for a few years, but I was in so much debt, I had to stop contributing in order to pay down the debt (that’s a topic for another post though).

I left that employer in 2005 for another employer for 5 months (they got acquired). I didn’t contribute to their 401k for some reason, but I wouldn’t have vested in their match anyway.

I left employer #2 for employer #3 at the end of 2005. I contributed to #3’s 401k for 9 months, but left for my current employer one year ago, which brings us to the topic of this article…

What if your employer doesn’t match your 401k contributions?

When I started with my current employer, I found out they had a 401k, but didn’t match my contributions for the first year of my employment. I thought “Why would I want to contribute if I don’t get that free money?”.

Answer: Because I could have saved a bunch of money on taxes and may have even gotten a refund!

I figured that if I didn’t contribute until my first year, I could use that extra money to pay down my debt. This time, unlike during my first employment period, I DID actually use that money to pay down about $6,000 or so in debt. But not everyone has that discipline. I didn’t have it the first time around.

The Moral of the Story

Had I contributed enough pretax dollars to my 401k last year, I would have gotten a refund instead of almost paying a penalty for not paying enough federal taxes. When did I learn this? A few weeks ago when I filed my tax return.

But now that I’ve been at my employer for a year (next month), I’ll both start contributing AND my employer will begin matching contributions.

Have any of you been in my situation? Did you have the discipline to use your investment dollars towards paying down debt? Should I have even used that money for debt rather than retirement?

About the author

Clever Dude


  • Back when I started working in my first fulltime job, the employer didn’t have a single dime of matching. However, I still put the max allowed by the IRS which was just 15% back then. While I didn’t get any matching, I did get the benefit of the greatest bull market ever with 25% of my allocation in T.Rowe Price Science and Technology (dotcom, networking, computer companies). Luckily, that company I went for went bust in 98 and told everybody to get the hell off the 401k plan — and I moved the money into my own IRA mid 99. That saved me from the dotbomb period in 2000. Basically, my market gains were probably 4X larger than I ever could have gotten than the typical matching.

    Another personal annecdote – while I was still going to college, I worked part-time. Two of the companies I worked for offered 401Ks and allowed part-timers to participate. My thinking back then was how will $1000 per year (max at 15% IRS limit) going to help? Flash forward to 15 years later — doing some calculations based on the S&P500 and I get $35K! @$#$@^%@$!!! And no, I didn’t need the money because I went to a cheap school while living at home.

    A final note about poor 401K plans, being able to rollover a big lumpsum to your own IRA gives you a lot of flexibility later in your investment choices. So even if an employer offered no matching and poor choices, I’d still contribute the max possible because I knew in a few years, I would have complete control of the money.

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