Raise or 401(k) Match?

A co-worker and I were talking the other day and we started discussing the pros and cons of getting a salary increase versus a 401(k) match.

Our company cut both in 2009 and there’s no shot that we’re getting both raises and reinstatement of the 401(k) match.  Frankly, I’m not convinced that we’ll get either.  We’ll probably find out in the next month or so if there is any benefit increase for 2011, though as I said, I’m not holding my breath.

I’m curious as to what the thoughts are as to which is better.  My co-worker was squarely in the corner of the 401(k) match, as the tax benefits and encouragement to save for retirement outweighed the benefit of having a larger paycheck.

I agree with him on these points, but he went so far as to say that a 1-2% 401(k) match would be more favorable than even a 3% raise.

This is where I’m not convinced.  I figure, even with the tax implications, I could get a 3% raise, dedicate 1% of that to increased contributions in the 401(k) and still end up with probably 1.5% more take home pay.

His argument (and again, it was hard to disagree with him) was that, while he and I would probably dedicate some or all of a raise to a 401(k) match, the majority of people probably wouldn’t, and would just take home the money (and spend it).

What do you think?

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