Give Yourself a Raise?

From MSU Extension


Most people would give themselves a raise if they could. Yet, some Montanans are missing the opportunity to do just that. More than 60 percent of American workers have access to an employer-based retirement plan, but those who don’t take advantage of it are leaving money on the table, according to Joel Schumacher, associate specialist with Montana State University Extension.
Schumacher said there are several ways workers can increase their income by participating. Many plans are defined contribution plans which typically have a formula that determines the matching contribution an employee is entitled to receive from his or her employer. For example, a company may contribute $1 for every $2 the employee contributes. The formula may limit the matching contribution to a percentage of the employee’s salary, such as the first six percent. In this case, a person who contributed six percent of his or her salary receives an additional three percent for the same work. For someone making $35,000 per year, this is worth more than $1,000.
Contributing to a retirement plan also lets the employee take advantage of tax benefits. Contributions to defined contribution plans are a pretax deduction. According to Schumacher, an employee earning $3,000 per month who does not contribute to the retirement plan will take home approximately $2,290 (total deductions vary depending on tax withholding status, tax brackets and other factors.) If this same employee contributed $150 (five percent) to the defined contribution retirement plan, the take home pay would be reduced by $115. The payroll tax savings would be $35. If the employer also matched 50 percent of the contribution, the employee would receive $225 in the retirement plan, at a personal cost of $115. This amounts to an additional $1,320 annually.
Schumacher recommends that employees who are not certain of the benefit package offered by their employer should first talk to the employer’s payroll or human resources office for guidance. Understanding and maximizing employer benefit packages may be the easiest way to get a raise, he said.
MSU Extension offers consumer economics education throughout the year.