Suze Orman Says This Is One of the Biggest Money Mistakes You Might Ever Make

You'll often hear that saving for retirement is an essential thing to do. If you don't make an effort to build up a nest egg, you might struggle to pay even your basic expenses once your career comes to an end.

Some people opt to save for retirement in an IRA. But if you have a 401(k) plan through your job, then that could be a better option for you simply because many 401(k)s offer an employer match.

If you're not familiar with the concept, it goes something like this: Your employer might match a specific amount of money you put into your 401(k) plan each year out of your own earnings. That match might come in the form of a percentage of salary or as a certain dollar amount.

So for the former, your company might say it'll match contributions of up to 3% of your salary. If you earn $60,000 a year, to claim your full employer match, you'd need to put $1,800 from your earnings into your 401(k), and your employer would then give you an additional $1,800.

On the other hand, your company might say it'll match contributions of a certain dollar amount. For example, it might put up to $3,000 into your 401(k), regardless of the salary you earn.

Setting money aside in a 401(k) plan isn't easy when you have numerous bills and other financial priorities. But financial guru Suze Orman warns that giving up an employer match in your 401(k) is one of the biggest money mistakes you might ever make.

Don't say no to free money

How often do you find yourself ordering takeout and being offered your meal for free? Probably not very often. It's pretty rare to get things for free in life. So if your employer is offering you free money in the form of a 401(k) match, Orman says to do everything in your power to take it.

"You cannot pass up free money," she insists. So even if you can't come close to maxing out your 401(k), Orman says to "take your employer match at the very least."

Of course, putting money into a 401(k) isn't easy when you need every last dollar of your paycheck to cover things like rent and groceries. But if you're able to work a side job that gives you enough income to make it possible to snag that free money, you're apt to be happy for having done so in the long run.

Remember, when you pass up an employer match in your 401(k), you don't just lose out on that sum alone. You also lose out on the opportunity to invest it.

The stock market's average annual return over the past 50 years has been 10%, as measured by the S&P 500 index. Giving up a $3,000 employer match today could mean retiring with about $136,000 less in 40 years if your 401(k) can also generate a 10% return over time.

You might be able to use your 401(k) as your emergency fund

It's generally not a good idea to think of your 401(k) plan as your emergency fund. Rather, that money should be earmarked for retirement, and you should have a separate savings account with money for unplanned bills.

But if you don't have emergency savings and want to snag your employer match in your 401(k), Orman suggests contributing to that plan but opening a Roth 401(k) rather than a traditional one. With a traditional 401(k), you're penalized 10% for withdrawing funds before age 59½ because you get a tax break on your contributions.

With a Roth 401(k), you don't get that same tax break, and so withdrawals taken before age 59½ aren't penalized as long as you only touch your principal contributions, not your gains. However, rest assured that if you're eligible for an employer match, you'll get it whether you opt for a traditional 401(k) or a Roth.

To be clear, Orman encourages savers to have separate accounts for emergencies and retirement. But if you can't manage both, she thinks it's smart to take your free money by contributing to your workplace 401(k). And if you have to tap your 401(k) for an unplanned expense because you funded that account instead of an emergency fund, so be it, as long as your 401(k) is a Roth.