How Much Salary Is Your 401(k) Worth?

SURE, YOU KNOW that your employer's 401(k) plan is a good deal. But how much of a good deal? And how much should it figure into your negotiations next time you think about changing jobs?

Perhaps more than you realize.

Let's say you're making $75,000 at your current job, and you contribute 10% of your salary to the firm's 401(k) large-cap fund option. The plan matches your $7,500 with 50 cents on the dollar, or $3,750. And since you save $2,250 in taxes (assuming a 30% combined federal and state rate), you can put most or all of that away for your kid's education.

Then you get a job offer from a startup firm with a 20% raise, bringing your salary to $90,000. Not bad. The only problem: There's no 401(k). So how much of a raise are you really getting?

Some of the disadvantages are immediately obvious. You'll lose the $3,750 in matching contributions. That means the raise is really only $11,250. And then there's the tax savings. Okay, sure, you can now open a deductible IRA, something you weren't eligible for before because you were already covered by a plan, but there's a $4,000 limit on that. That means that in 2005 you'll have only $1,200 in tax savings, $1,050 less than you now have -- which shrinks your raise even further, to $10,200.

But that's not all. You still want to save for retirement and your kid's education. But now you'll have to save more because you've lost the benefit of tax-free compounding. The after-tax rate of return each year on a taxable account can be more than one percentage point lower.

Add everything up and you will discover that if you keep your money invested for 20 years, $6,451 of your new raise will go to replacing the cost of the 401(k) program you're giving up. That means the new position is really only a 11.3% improvement on your current job -- chump change, really.

The worksheet below will help you calculate how much you'd be giving up if you walked away from your 401(k).

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