The feeling of getting your first paycheck from your first "real" job is so satisfying that many people never forget it. You probably hadn't received a check that big unless it was for student loans and don't want to part with any of it, especially if it's going somewhere where you're not supposed to touch it for several decades. Hopefully, your employer has presented you with health benefits choices and the option to defer a portion of your salary to a 401(k).
While it's true that contributing to a 401(k) account will slightly reduce your actual paycheck, the money is still yours but it's invested in another account. A 401(k) is a type of account connected to your employer that allows you to save pre-tax dollars for retirement. That means the money is taken out of your paycheck before taxes have been applied. You don't pay taxes on the account until you withdraw money, which can be done without penalty after age 59 1/2.
I'll be introducing a 401(k) Focus series soon, because saving early for retirement is one of the smartest things you can do for your overall financial health. Are there any 401(k) questions or issues that you'd like me to cover?
Dimensione Danza
Isabella Oliver
Repetto
Yaya! I get RRSP's this February! My company is going to match whatever we contribute up to 2%! That's so awesome!
1How about covering other options then a 401K. My company is tiny and we have a simple IRA. What are the options, and how much better/worse/different are they?
2Is 401K a US thing? I have never heard of it...
3What about for Canadians?
How about what to do if your company offers a 401k but no employer match? That would be great!
4I'd love for you to cover managing your 401(k) (and 403(b)'s for those of us in the non-profit sector) - it's great to be contributing, but I would like to know more about what I can do with my money while it's in the account. I think it's also good to know about loans and hardship withdrawals.
5can you also cover the roth 401k? i think thats what my employer will be offering and i've never really heard of it.
6What about IRAs? I recently opened a Roth IRA as a tax shelter for some mutual funds, and I don't completely understand it all, to be honest.
7Any advice for those of us who did not start saving until later in life. Say, early to mid-thirties. Is there still hope?
8I'm ready to open my 401(k) and start contributing, but i have no idea what funds to choose. Are there socially conscious choices - and if so, do they bring in less returns?
9thanks!
I second everyone's comments about other options too - I'm in grad school so I obviously don't have the option to contribute to a 401k, but I definitely want to start saving for retirement. IRA vs. Roth IRA - which would be better in the long run? Any other suggestions would be great too!
10ahh my job matches dollar for dollar whatever you put in!
huuuraY!! hehe
11and its up to 20%!!! soo im totally stoked about starting that off in the new year!.. that along with a bounus every 6 months! .. im in for a good year and life ahead of me!
I can tell everyone now who is just graduating and doesn't have a company that will match, do a Roth IRA. You will pay the taxes on the money you put in, not when it comes out (unless you withdrawal early). It makes the most sense. I sat down with someone at an ameriprise. They asked me a bunch of questions to see how I would be most comfortable in how much I contribute, and how aggressive I wanted to be. Start young!
12Yes please! My company offers 401K, to which I've been contributing 10% for one year, then down to 6% for another year. The company makes a contribution once a year in the amount of about $250. That's it, no matching.
Am I better off putting that money into a Roth IRA, or keeping it in the 401K to lower my income rate? I'm confused!
Also, when the money is in the 401K, how do I know where to put it (I'm 36, want to retire at 70)?
13401 gives me a headache...
14SkinnyMarie-
Exactly! You may open a Roth IRA as long as you've worked and earned some money in the year you open the account.
xo,
15Savvy
As others have said, I'd love to hear advice on what to do if your company doesn't match or has a poor matching program. My company matches up to 6% of your total income, but they only match by putting in 10% of whatever you put in. I get a better rate than that on my savings account!
16I'd like to know more about Roth IRA's, too as well as other options such as stocks.
Also, maybe a topic for a different time, but what's the best investment method- real estate, simple accounts, 401ks?
17I am so excited that you're going to do this series! I'd love to hear about 403(b) as well, and maximum deferral limits, how to plan ahead, and what you can do with the money while it is in the account.
18I at least have a 401K, actually a few, from different employers....Should I consolidate them into one, should I diversify more...What % of my portfolio should be risk in my late 30s?
19i'm in college and i just started working at a bank. there's a 401k available to me, but should i start one if i don't plan on working there for more than 2 years? would i be better off putting that money automatically into a money market account?
20I would love more information about Roth IRAs too.
21Ditto about the Roth IRA.....I am very interested in investing in one. More info would be great!
22I put my money in a deferred compensation program through my work. I dont even miss it anymore. If i quit this job, i can either take all the money out, and reinvest it, or keep it in and keep adding to it.
23Would you please discuss ROTH 401(k)'s. They were talking about them on the Today Show yesterday and I am wondering which is the best option.
24Definitely would love some tips on how to choose funds!
And how about those programs that the 401k companies offer that are supposed to help you choose your portfolio (like Prudential's Goalmaker), are they worth doing?
25I would also like info on real vs. roth IRA's. What are the benefits of each and which one is better?
26i'm 21 and i've been working at the same place for three years. i haven't talked to my employer about 401k. should i do that now or is there a certain age that i should start asking.
27thanks!
If our employers do not offer 401(k)'s, I'm interested in learning more about options outside of the traditional RothIRA (if there are any.) Right now I have $ in a Roth IRA and I put some of my excess savings in a mutual fund. I'm still terribly confused about how my mutual fund will be taxed. Any "for dummies" information on this you could provide would be awesome.
28What happens if I have a 401K and I leave the company...????
29Will you cover 401k's that I can get on my own? My job doesn't offer anything for me. I have a high interest savings account, but I'd really like to earn interest on what would have been taxes for the government.
30What ratio of money should you allocate to debt, savings, 401k?
31I would like more info on a 403(b). When I was hired at my job, the personnel lady kept going on and on about how great the 403(b) program was, but I had no idea it was the non-profit equivalent to a 401k. I am completely clueless about this stuff so very basic info would be good. Also, maybe something in the future about withholdings on your income, how owning a house affects your taxes, stuff like that. My husband and I bought a house in the latter part of last year. Everyone keep talking about how we're going to save so much money in our taxes, etc. but I have no idea what they are talking about.
32Thanks for this information! It is really helpful!
33i have the same question as a few other readers...i have worked at the same company for 6 years and am so embarrassed to say that i have not joined/contributed to my 401k yet. mainly out of confusion and intimidation at this point. is it too late to reap those benefits?
34THANKS!!!
Great topic. For folks new to 401(k) or 403(b) you might discuss how to pick an investment option (or to use the default option). Also, plans with "Automatic enrollment" for new employees.
Also, a good suggestion for contributing is whenever you get a raise, just up your percentage contributed to the 401(k) or 403(b) because you won't miss the money.
35Lots of support for covering retirement savings options! Don't forget about college savings programs for your kids either. Anything that limits taxation and increases options for enjoying retirement is HUGE. That being said, covering 401k(403b) specifically is a great idea. Its one of the most effective ways for those of us regular people working for someone else in either sector to ensure our paths to financial freedom.
36you know im not really good at understanding this things but i've been meaning to get into one for months now. im definitely going to do that this year, maybe when my tax refund comes in (i can clear off some bills and all) start fresh, but which is better, 401k or mutual funds?
37I'm with ambergrl -- I have a few 401(k)s from previous employeers, and will be able to start contributing to the 401(k) in my current position in Feb. 2007 (after six months of employment). Should I combine the previous accounts into one 401(k) or should I roll them into my Roth? One employer does not charge for me to keep it with their financial provider, but the other one will after one year of leaving the company.
38i think that the first time i heard of a 401(k) i thought it was crap - and i didn't invest - but now that i'm older and i know more - i've learned that it's something to really be aware of and contribute to
39I would like to know what "price matching" is?
Also, would the 401 (k) follow me to EVERY job i go to that offers 401(1)k?
what is an IRA and ROTH IRA?
i think Savvy is my new favorite columnist!
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