Wednesday, January 22, 2014

Easy 401(k) Steps

image from MintLife
Something very simple to do today is to take full advantage of your company's 401(k) matching program, if they offer one.

Even if one knows absolutely nothing about a 401(k), this is still the easiest thing she can do to help start on the right path for the long term.

For years, my eyes would glaze over when these types of financial options were discussed, so here's a super simple explanation in case you're already starting to tune out…

-Just like with the TransitChek program, 401(k) money is taken out of one's paycheck pre-taxes. Taxes are taken out later, when one "cashes in" her 401(k).
-Many companies will match an employee's donations to her 401(k), meaning that if one puts in $200, the full amount going into the account will be $400.
-The money is intended for retirement, and therefore is usually required to stay in the account until six months after one's 59th birthday, and withdrawing it early usually means not getting all of the money in there.

One may have already signed up for the program when she was hired and filled out tax paperwork, but if unsure, it is absolutely in one's interest to find out…

-If her company makes a matching contribution, and if so, the max amount they will match.
-How much she is currently contributing (one wants to contribute the same as the max).

If one's company matches donations, she is throwing away free money by not signing up and contributing the same amount as the max amount the company will match. Yes, it means less spending money now, but in a few years, one will be very pleased she made the choice to contribute.

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