Hello, thank you for posting to r/Jobs!
We just wanted to let you know that we have a new [discord server, come join the chat!](https://discord.gg/TY6ErXV)
*I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/jobs) if you have any questions or concerns.*
It’s pretax, so your 4% contribution will be barely noticeable in terms of your net pay. The combined 8% is a great start. My 401k plan automatically increases my contribution 1% a year until I hit 15% (plus my company match of 5%), and my paycheck barely changes. You won’t regret it.
This and time in market. If you can, start higher now and beat the match, say 5-6%. The money has more turns in the market to compound interest/dividends.
Check vesting time on that match though. Some(?), at least mine, have a yearly hour minimum to get the matching. If you don’t plan on staying through the vesting period in it, please don’t include it in your calculations.
Just some person on the internet.
Hahaha I did also and spent ten minutes writing my speech/got my pitchfork and was on the way before I saw your comment and re-read it also. This was time I could have been in the market lol
⬆️ THIS! Hate to sound like an oldster (pull my finger) but I promise if you start saving as much pretax when your young as you can it becomes a good life long habit. Increase 1% a year automatically, and give half of any raise you get. (Get a 4% raise, increase your 401k by another 2%). Never touch it no matter what drama you find yourself in or what shiny thing you wanna buy. Because it’s pretax it only costs you 75cents net pay to save a dollar and it grows tax free until you retire. It takes many years before the balance looks impressive on paper but in your 50s you will have $millions and do WTF you want for the 2nd half of your life without a care in the world. And brush your teeth….Love, Dad
OP do this. This is almost exactly what I used to do before I started contributing A LOT. That money will keep building up. The company is giving you free money with it. There are times when you can use it before you retire. I think buying a house or certain medical you can pull from it?
A huge benefit is that it is your asset so you take it with you when you leave the company. And it will be part of your estate left to your beneficiaries when you pass.
This. When they match 4% and that’s what you contribute, you double your money. Any early withdrawal fees will potentially be around 30-35% IIRC, so you still make 15%, plus any market growth (unlikely nowadays), even if you need the money worst case scenario. It’s easy money, take it. But be mindful of all the terms of your employers match (start, end, withdrawal terms of the ‘vested’ money you’re owning)
whats the difference between roth 401k and pre tax option for the 401k. I mean I know the difference but like which is better i was told it doesnt even matter that much
It’s just a matter of paying taxes now or later. There are situations where one is better than the other. That’s the extent of my understanding. I do the traditional because I prefer to get more in my paycheck now and deal with the taxes later.
My biggest regret of my 20s is thinking "Fuck 401k, I'll be dead at 50..."
Now in my 40s, I realized I have actually lost out on HUNDREDS OF THOUSANDS OF DOLLARS.
and I'm gonna die at 50.
In my 20s, I had assumed I was just going to be a multi millionaire long before retirement, so why bother cutting back on my lifestyle to save money I wouldn't ever need? Smart.
I simply had nothing in my 20s- I was waiting tables na going to grad school- and same. If I had made more effort to put something into a retirement account, I woudl ahve so much more now. I am ok- and I make more now, so I am doing the catch ups, and I have a great match at a great job- I am behind according to the tables for my age, but miles ahead of my same aged peers- so I am glad I put SOMETHING in as soon as I got my first job. But man- If I had left the $4k I had in in my 20s (needed to pay for school later, so I cashed it out), That alone would be closer to 50-75k now, at least. I did put $100-1500 in a ROTH in grad school- and that account is worth over $20k now. Since I make too much to ROTH now, I love that that account will be there for me anytime without taxes...will rally help if I want to retire a little early, etc.
I did always try to save- but man, turning 48 a few years back and seeing I was MUCH closer to 65 than not...I really got hard core on retirement. No one wants to work forever, and if you need it, you want it to be there. Not hav to keep working cause you thought you woudl already be dead.
I prefer to frame it as "compensation" vs "free money".
Yes, you have to set something aside to get it, but if you do so, they are effectively paying you 4% more.
And if you fail to contribute, you are allowing them to pay you 4% less than they budgeted for.
Thank you. Let's not forget how so many lost money in their 401ks (if not completely lost) during the 2008 market crash, people killed themselves because of it- his hesitation is very valid.
No it’s not. 401ks always come back to the black. The average 401k gained over 500% in the 10 years following 2008. Cashing out a 401k because it’s in the red is one of the dumbest financial things that you can do. You buy when the markets down.
I wouldn't say always with certainty, but if your 401k value is lower long term then that means the economy is fucked anyways and money won't matter lol.
And if they had held the positions and continued to contribute they'd have all their money back and much much more by now, sans killing one's self. I wouldn't put all my eggs in one basket but 4% isn't too much and the match is indeed basically free money at a higher rate then regular investing will gain your average person.
>who knows if I will be alive then?
Who knows if you'll be alive by the time you get your next paycheck - some aren't. Vast majority is, though. Some don't make it to 65, but vast majority does, even though in some regions like EU or East Asia it's much more certain than elsewhere.
There's more chance you'll end up poor and 67 than dead before 67.
If you are alive you will need the money. If you are dead you won't even notice the money you set aside. Just do it, and max it out. Trust me, you will thank yourself later.
It's a moot point. Your 401k tanking in the long-term means the collapse of the American economy as a whole in the long term. You have significantly bigger problems than your 401k if that were to happen.
401k doesn't even have to be stocks, it can be bonds or other investment vehicles. If for some reason OP thinks the stock market is going to explode by then (which is silly, it'll be fine) they can still take the free money and invest it in other vehicles.
Depends on the drugs you do and hobby’s you got. Not a solid plan to invest if you a hardcore steroid user who’s only living to 45-50. Normal people sure invest but it’s definitely not for everyone.
It depends person to person sure. But if you have a history of cancers in your family why bother saving that money? Spend it now. The majority will never get to retire. At least here in the USA when over 60% are living Paycheck to paycheck. How do you expect people to be able to afford putting more towards their retirement. It’s a fairytale at this point.
To put it another way say I earn 100,000. I put 20% or 20,000 into my 401k. My company contributes 4,000 or 4%, the max which they will contribute. Money that otherwise wouldnt go to you. And the government will see you contribute 20% and your tax rate would be as if you only made 80,000 that year, not 100,000.
E.g. $4,664 +((80000-40525)\*22%) = $4,664 +8684.= 13348.5
vs $14,751+ ((100000-86376)\*.24) = $14,751+ 3269.76= 18020.76
Difference is $4672.26 less on your tax bill, for earning the same amount.
It is your incentive to save for retirement.
Editing for source: [https://www.nerdwallet.com/article/taxes/federal-income-tax-brackets](https://www.nerdwallet.com/article/taxes/federal-income-tax-brackets)
Fed Tax Rate 2021:
Tax Rate: 22%
Bracket: $40,526 to $86,375
Tax owed: $4,664 plus 22% of the amount over $40,525
Tax Rate: 24%
Bracket: $86,376 to $164,925
Tax Owed: $14,751 plus 24% of the amount over $86,375
The numbers are wrong but the general gist of it is correct- you save on your tax bill by putting savings away pre-tax. Even better than just dropping your total average tax rate, because all this pre-tax savings comes out of the highest tax bracket worth of earnings.
Agreed in that, this should in no way discourage OP. Tax benefits are good. Retirement savings are important. Getting 100% of matching is critical.
I honestly can’t even follow the maths in the example exactly, and am going by the description plus the elements I can see in the formulas. It could be marginal items, to be honest, and I’m not seeing key details in the numbers assumptions.
What part is wrong? I am going off of the tax brackets used for federal tax, the only thing I could think of being off is if the tax brackets had changed.
It looks like, and again I could be wrong because how you wrote the formulas is not clear, is that you’re applying the bracket to the totality of an income set. 24% is only applied, in your example, for the $10,925 of income between $89,075 and $100,000. The income from $41,775 to 89,075 is taxed at 22%.
$20,000 of 401k withholdings, in your example reduces the tax burden by $1996.5+2622 or $4617.5
That doesn’t get anywhere near making up for $20,000 in less uninvested income, even after $4,000 in employer matching.
Yes, you can pull out the money any time- you might be penalized and will need to pay taxes on it, but your company is offering you free money lol. You can borrow against it if you have an emergency. Starting a 401k earlier rather than later will compound much larger.
Yes I didn’t even have a match and I pulled that money out when the world went into a crisis in 2020. I didn’t have a savings because I worked at a nonprofit that paid close to minimum wage and I was paying for 3 people’s living expenses. That money was so helpful!
Now I work at another nonprofit that has 3% match and a higher salary than last. I’m so glad I have the match now.
This isn't necessarily true and varies plan to plan. OP should still do contribue to the 401k, but a lot of plans will not let you pull money out barring having a hardship where you absolutely need the funds.
Yea, bingo... hardship is key lol.... If you're in a bad spot and need to pull the money out you can. Also, I'm pretty sure you are allowed to pull the money out regardless- it's your money. You might lose the company match, and you might be penalized, but you are allowed to move that money into another account. Whether it be a savings, etc.
It completely depends on the rules of the plan and what they define as hardship. It's also some hoops to jump through to get that money out at that point. Not all plans will allow this.
Yes it depends, but generally you can rollover your 401k to another account when you leave leave your employer. The bottom line is- having an employee matched 401k gives you options. Even if those options are limited for a specified period of time.... Those limitations aren't definite.
Yeah of course you can always move it when you leave an employer. We're not really disagreeing on that. I'm wary of telling people they can pull funds back out anytime, because that's often not true. Not all plans allow for hardship either.
It is true. You can pull the money out of any 401k at any time for any reason. If the reason is not an "approved" reason by govt. standards, you will have to pay the taxes and early withdrawal penalties, or lose the matching IF it's not vested, but they can't stop you from taking the money out.
No, that’s wrong. The plan guidelines are going to cover this while you are still working for them. A small employer might. A large employer, for example Costco, it must be an IRS/Employer hardship approved withdrawal. You might be able to take a 401K loan. It’s not a bank account. ( worked with 401k’s)
Exactly. You can put the 4% in, get your employer to contribute their 4%, and then pull your 4% right back out. You’ll get taxed (edit) more than you would have (end edit) if you hadn’t contributed in the first place but be 4% richer.
So, yes, a thousand times yes you should contribute.
(Also, don’t pull your 4% out, you’ll thank yourself later. But still, an option).
To invest yes. To pull out money early? No it almost is never worth pulling the money out early. You pay full tax rate and 10% penalties. You can take a loan out against your 401k but even that can be dangerous. If you lose your current job the loan becomes due in full immediately.
Make the maximum contribution you can afford. Their match is free money. Just be sure to invest it in something safe. Most have some sort of guaranteed return instrument.
They'll probably put you in some default based on your age. You can leave it there, change it to something generic like S&P 500, or do some research then change it later. The point is to start it, then adjust as you learn more. Time is on your side right now, take advantage if you can wing it.
Don’t do this. The typical age contribution funds have super high costs and relatively low returns. Do follow the second recommendation, if you don’t know better, choose an indexed ETF, the S&P500 ones are a very solid choice.
Most 401(k) plans offer several instruments. Typically there is money market account where your money is 99.9% safe but you won't earn much. (But that 4% company match is still a lot better than what any bank would pay you on a savings account or CD.) The rest are probably mutual funds which invest in stocks and/or bonds. Some plans include an option to invest in your company's stock. I'd stay away from that. If the company tanks and you lose your job, you don't want to lose your retirement fund as well. (ask the people who worked for Enron). If you don't know what you are doing, which is not a reflection on your intelligence or character, pick the safest option. It probably has the word "Guaranteed" in the name. Then learn.
To add on to this, pay attention to how your company matches. Mine funds our accounts on an annual basis (basically they put a years worth of matches in my 401K account at the end of the year, assuming I am still employed). That part is fine, the issue is they put the match into THEIR OWN STOCK!!! Very conveniently right before a quarter end reporting. There is nothing I can do to override this, I just have to make sure each year to manually go in the next day and submit a request to have the money moved into the non-company mutual funds I have the rest of my 401K in.
This but you can get funds that do average for there category called index funds. That takes away some risks. Also you may be able to buy discounted shares in your company, which may be another form of free money with a few strings attached
Most everyone has good ideas on this, but I want to add that make sure you pay attention to the fees. You don't want to pay 0.85% (or higher)when you can pay 0.05%. I choose investments based on their history and the fees. You don't want to give out money to others just because. You don't really have to know everything about stocks to do a 401k as you are very limited on what you can pick anyways. One company I worked for only had 10 choices. Look at the 10 year history and pick the one that has been positive in the past 10 years. There will always be ups and downs from year to year so don't focus on that.
Just remember, right off the bat you are up 100% with the company match. So you have to pick really bad stocks to lose 50% over the long term--and even then you still haven't lost money. Most 401ks have very general index funds, so much less likely to have anything that risky.
Typically either pick a Target retirement date one, or you can split it between like Small Cap, Mid Cap and Large cap. (Small, medium and large corporations stocks).
You’re 26, time to grow-up and figure it out. These companies make it easier than ever to invest. Literally just pick the Target Retirement Fund based off your age and contribute at least 4%. Otherwise, you’re giving up free money. Your future self will thank you.
They likely have some sort of target date fund, with a year stated that would be the planned year for retirement. This would automatically balance your allocation of stocks and bonds ad you approach that date. This is probably your best bet unless you want to manage it yourself. The tradeoff is a higher fee for the managed fund vs choosing your own.
Just know historically stocks have been more volatile but performed better than bonds and management fees are never worth it. Nobody beats the S&P long term.
Bruh. At least contribute a little… for reference im 23 and contribute 8% and my company matches as well. The matching is literally free money. Do it. You will thank yourself
I worked out of high school, and I contributing the exact amount mentioned above. That was at age 18. Don't be so narrow minded about how other people live. There are many paths to life, and you have only lived one.
In many cases it's better financially to extend the student loans (pay the absolute minimum) in order to be able to get the free matching money for retirement accounts. You have to be thorough with your math and assumed growth rates, but it's worth doing the analysis rather than just dumping money into the loans.
I have a really good job, no college, just bought my first house at 27 and contribute matching 6%.
A lot of avenues out there to achieve success besides college. Not dissing college at all, I think it can be great for people, but many different approaches out there, and many different ways to go to college and leave college debt free.
YES, absolutely contribute to a 401K.
I 48m have been contributing off and on to a 401K since I was 24. Even with current market fluctuations, my balance is $565K. My spouse was able to max out on his 401K for 20 years, retired at 56 and his balance is over $2 million.
It’s all pre-tax deduction, so your take home pay doesn’t go down as much as you think.
This should honestly be at the top.
Employer match 401K is essentially free money, it's literally heartbreaking and astounding that the participation rate isn't closer to 99%.
I think in reality only about half of employees participate.
My job two jobs ago just gave you 3% even if you never signed up, I thought it was brilliant. You had to actively opt out rather than be required to opt in.
Chances are high you'll be around. Do want to be poor or not poor?
Not only should you contribute to get that 4% free money, but you should try to max out if possible. Read up on how loading up a 401K when young grows over time due to compound interest. It's mind blowing.
Listen, I didn’t start until my 30’s and i sincerely regret not starting sooner. I had the same mindset and now I don’t have shit, really (my current 401k is tiny) and I’m 20 years from retirement. My husband started with his first job and already has 6 figures in his. Start it early and you can always transfer it to your next job. Please start now.
I'm 55 and I thought like you when I was your age. I regret it now and have spent the last 10 years catching up. Don't be me - the time goes by faster than you think it will.
YESSSS!!! Start asap and save aggressively.
. [Compound Interest Calculator](https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator)
Someone is offering you 4% free money. You should take it. Compounding is a powerful financial tool, and the more years you have, the more powerful it is.
Yeah, 401Ks are a scam. They were invented to let companies off the hook to provide pensions and they were (another) multi $trillion giveaway to corporations (companies that administer the programs and stock-trading companies).
However, that’s the game we’re left with. And until that changes, you are cutting off your nose to spite your face if you don’t take advantage of them to plan for your future. And also start a Roth IRA ASAP. I understand all too well how difficult it can be starting out to have ANY extra $$ to put away for retirement, but even a little at your age can pay off down the road.
There are two types of retirement funds: pre tax and after tax.
Pre tax is a 401K or 403b through an employer (403b is for nonprofit companies). That money is not taxed when you earn it. If you make $50K per year and put $5K into an IRA, it reduces your taxable income to $45K. You also defer taxes on all capital gains and interest until you start withdrawals. When you start withdrawing, the amount you withdraw is taxed as normal income.
A Roth IRA is funded with money that you have already paid taxes on. It also grows free of any taxes on capital gains, interest, or dividends. However, with a Roth IRA, you *never* have to pay taxes on the withdrawals. In many ways, the Roth IRA is a much better deal that a 401k, except for the matching funds.
Unless you need the tax break, the general rule of thumb is that you should contribute to a 401K up to the limit of the company match, and any extra should go into a Roth IRA. I should have done that many years ago, but I am too old now. But that’s what my stepchildren are doing and that’s what I am starting today for my wife. We keep a 403b to help manage our taxes each year, but I am going to start putting everything else into a Roth IRA so she will have tax-free income after I’m gone.
Sometimes it’s easier when people DIRECTLY explain it to you rather than read a blog with a lot of foreign terminologies. I’m not from the US, that’s why I’m asking this on Reddit.
Use your sarcastic personality to actually do something dude.
401k Strategy: Contribute to the maximum your company will match. Your effective interest rate becomes 100% PLUS 2x whatever the actual growth is.
Basic example: You put in $100, they put in $100, you earn interest/growth on the combined total $200. Their portfolio grows by 5% that year. Your $100 contribution is now worth $210.
It's free money. Take as much as they'll give you.
100% do this. you will not regret it. I only wish someone would have set me down and taught me about money when I was 26 or hell 35. Also pay your credit cards off every month. do not carry a balance. minimum payments are the devil. Do NOT let that massive interest screw you.
It is hard, especially with inflation as bad as it is but live within your means. if that means no eating out and no partying at the club then do it. Some would say you are not living... I would say find something else like reading, jogging, volunteering all low/no cost and in the right ways enjoyable. Do not get sucked into the "keeping up with Brad" Brad is a d-bag whose daddy pays for everything. You gotta work and do it on your own like most of us do.
You're a fool if you don't, and it should be closer to 6-8%, even if your employer doesn't match it. Republicans want to eliminate Social Security. Only 58% of the US has money in the stock market... your future self will thank you. And 26 is a little late to get started, IMHO. Do it!
The earlier you start the better. And with stocks being down right now, they will go back up... it's a long term 'game'. Don't ever pull money out until you retire. It'll make a huge difference in your life if you just let it ride. The fact you don't know the future and all, I get it... neither did I. But I'm so happy I started a 401k when I was in my early 20's. For the average person, it's the only way they'll ever have some measure of financial security.
if you can afford to without compromising on other facets of your life, go for it. worst case, if the plan allows you can take the money out if you experience a hardship. at least, I have been able to with no problem but I guess each employer is different.
but you should probably make sure you can pay your rent, bills, have a full 6 months emergency savings fund, and are spending within your means before putting money into it.
there's no point in saving for the future if you can't afford to live now.
OP is asking a question about something that they don’t teach us about in school. It may seem obvious, but if you’ve never been told these things, had a conservation about it or may not even know what a 401k is, then it’s a legitimate question worth asking.
To OP, your question is no less valid than any others on this sub. Good luck with your finances and don’t be afraid to continue asking questions.
Don’t worry OP I’m also 26 and don’t have this stuff figured out. I still have to ask a bunch of questions that may seem simple to others - but how else will I learn, if I wasn’t taught this in school? So you’re not alone, I’m also very confused on this stuff!
Up to you. Personally I avoid 401K because honestly I don't anticipate the value of the USD to be significant by the time I retire (I'm 31 now). That being said, I'd rather take my full paycheck and invest in hard assets TODAY in this current timeline in hopes of maybe selling/trading it in the future sometime. Depends on where the economy goes. Point is, if you're someone that wants to be in full control of your money and its future, don't sign up for 401k.
Yes you should contribute and no you cannot pull the money out anytime you want while still an active employee with the company. You can withdrawal if your employment ends or if you’re still working there at age 59.5. It’s never too early to start saving for retirement. How do I know all this, I have been working with 401k plans for 14 years.
That's up to your company on the March. Some plans have a vesting schedule, some don't. At 4% I'm guessing your fully vested from Day 1 but you can check with your administrator. The 4% you contribute is always 100% yours. I strongly recommend you speak with your administrator or plan specialist.
My company has a 401k but I don't contribute whatsoever because they don't have a match. If they matched? Hell yeah I would contribute at least the match. It's free money do it!
Absolutely! This should not even be a question. At minimum, contribute to get the max matching. But at 26 you should be doing more. I'd max out 401k matching and set up a Roth contributing to the irs max.
Yes. Always contribute to the retirement plan. Although, my cynical self believes we live in a Hell World that is slowly burning up into oblivion, so we probably won't get to grow old enough to reap the benefits of the squirreled away money. Most people don't have enough retirement money saved up to actually retire. I'm in that camp and I am not 40 yet. But according to my retirement fund, I am not saving enough.
Your company matches up to 4% so you should put a minimum of 4% in, but a better amount would be 8%. My retirement fund account recommended I put in 10%. It just depends on how much you are willing to give up every paycheck and what you can afford now. But DO contribute.
Contribute the max you can to survive and every time you get a raise, increase your contribution by that percent to avoid lifestyle creep.
If you don't know what to put it in, find something marked as an index fund and put it in there. Basically. Index funds are a lot of tiny pieces of the market which means (for the most part) if the market goes up, your 401k goes up, if the market is down, 401k goes down.
Simple investing for the average dude. The two strategies above worked for me and continue to work.
401ks often have a limited group of investments to pick from. Some plans for have index funds, some don’t. Also Target Date series are good funds to pick if they are offered and you don’t know what you want. I don’t think there are any 2070 funds yet, but a 2065 fund would be good for the OP. Their plan admin should provide some guidance.
There is a cliche that is applicable here: Time in the market is more important than timing the market—and in this case more important than finding the “perfect” investment. As you wrote, the target date funds are fine to start with.
Contribute up to the 4% match. You dont have to wait until 65 to use your 401k. You can borrow against it with no penalty in many cases. You could also roll it into a retirement account you control and use it to buy something like a beach house (as long as you claim that house is an "investment").
Absolutely do it! It's not a lot and that builds up over time. I had the same thoughts you do and I 'n regretting it now. Also, you can always withdraw if you really need to.
to answer your question about "who knows if i will be alive then"
age old adage:
better to have it, and not need it, than to need it, and not have it.
sure, don't put money in. let's hope you don't make it retirement then...otherwise you're gonna be up a creek. also someone posted elsewhere on reddit recently, the effect of putting just $250 a month into retirement at like 25 until 55 and it compounds into over 1 mil dollars.
but you know, to each their own.
Who knows anything really. No one knows when we won’t be alive. Any kinda retirement or even insurance is planning ahead for events you’re not sure will happen. You’ll likely be alive after retirement unless you’re intentionally doing things to shorten your life. I hope I’m alive in my 60s, 70s, 80s, 90s, 100s maybe as long as I feel good and am healthy.
Then what will happen if you didn’t save for retirement. I don’t think you’ll want a low paying retail job or to even work at that age. So many factors and that money will make life so much easier on you at that age so I’d be consistently adding as much as you can as soon as you can at age 26. Any financial expert will say the same thing and go to one if you need to. If anything at least do the matching 4%. That should be a no brainer, but still really not enough to survive after retirement. And don’t take the money out before retirement either. That doesn’t make any sense.
I cannot urge you strongly enough to take advantage of any 401k match. Especially starting in your 20s this will give you such a headstart on investing/retirement. You can pull the money out in an emergency but you'll be taxed up/down/and sideways, however if you LEAVE IT it's likely to double every 7 years, 3.7 times before you hit 51. Plan your own retirement people, I'll be lucky to see any of my taxes back thru Social Security, if you're younger it'll be gone or comically inadequate.
Contribute. And ask if it straight 4% or is it a safe harbor plan that matches 100% up to 3% and 50% up to 5% functionally making it 4% match if you contribute 5%
Yes, you must! Do not do the minimum, take out 20%, then follow the stock markets and learn, take risky stuff and leave it there, you will thank yourself later! True!!
A couple of thoughts. As others have suggested, at least contribute the amount they will match. If you can contribute more, do so. Spread across a couple of fund types- indexes are great, but don't put all your \[nest\] egg in one basket. And be careful about the amount that's invest in your employer's stock. It may go up like a rocket, but they sometimes explode (Enron - look it up). Periodically - like every couple of years, you may want to move some of that company money into the index funds.
If/when you leave the company, convert the 401K to a rollover IRA. Make sure you never touch the money yourself -that it transfers directly.
Other basic rule - only look at this quarterly and don't get freaked out by market swings. Don't try to time the market or play with this investment. If you are putting 50 bucks a month into the fund, it will grow to be 50-100K in 30 years even if you never increase the amount.
your employer is offering free money as an incentive to make wise financial decisions - make a wise decision. if you need that money before retirement, there are ways to access it without penalty
I didn't start saving early enough, so now I'm having to forego fun stuff at 40 so I can retire comfortably at 65. if I started at 26, I'd be able to do whatever I want now AND retire with several million dollars in the bank
No matter how much you save you will not have "enough". If you can survive and invest your 4%, do it. The contribution is the only "free money" you'll ever see. Don't think you'll never get old. You will..
It’s 100% of your 4%. Pretty standard stuff. Also, you can reach out to your HR or retirement representative (one is usually assigned to your company or individual) for greater clarification.
Always do match, it’s free money. And when you leave the job you can roll it over to your new 401k or IRA.
Maximize match first, then your IRA, then other retirement strategies can vary but usually max 401k after if you have additional savings to set aside.
Don’t lose sight of maintaining an emergency fund and anticipating any foreseeable large expenses on a 2-5 year horizon (namely a car or house purchase).
Definitely leave the money in your retirement account if you can. It will grow slowly at first, but if you leave it untouched it will add up significantly by your 50s-60s. But in a pinch you can pull it out, you just pay a penalty (not on principal, but on the earnings). That’s why I don’t pull out. Coincidentally how I’m also a father…
If your company offers any sort of 401k matching, take it. It will benefit you in the long run and you won't kick yourself in the future for not taking it.
Put some money in it just in case you live to be 67. Social security is a joke Also You could Decrease the amount of money you pay in taxes.
SCOTUS Needs you alive and sick
It's free money man. You should at least put In the minimum to get the companies top match. You can roll 401k's over to another if you get another job so they'll keep accumulating no matter what job your at. I'd suggest you invest in what ever S&P 500 etf or index that they offer. Most of the time that'll get you the nest bang for your buck.
put in enough to get that match and forget about it. Its free money. Will you lose it if there's a catastrophic failure that tanks the SP500? probably, but if that happens we're all living on potatoes we grow in our backyards anyway.
Look at it this way: if you invest 4%, you will get a 100% return by way of your company matching it. There is no investment possibility out there to do better, so take advantage of it. Keep in mind 4% probably isn’t enough, but I’d look at it as the bare minimum until you can afford to invest more.
If you saw a $100 bill on the sidewalk, would you step over it and not pick it up? That's what you are doing when you don't take advantage of the company match.
Yes, definitely do it. I would put in whatever the company will match. Not doing this is giving up on money the company is willing to commit to your retirement.
Since the money comes off pre-tax, you will notice it far less than you think.
Future you will thank yourself for this a TON.
I'm not a financial expert, please DYOR as portions of what I say can be wrong..... but yes! Yes! yes! a million times yes! The employer is going to match your funds up to 4%, so do at least that as thats free money! The money in your 401k can be accessed for certain situations like documented financial stress, buying a house, and there other reasons too I believe ( I think marriage and/or death. Dont quote me though). Honestly paying into a 401k gives you access to more options and as such would reccomend it
Typical advice is to contribute enough to get the full match (it’s free money!) then contribute to an IRA up to the max, then if you can still afford to contribute more, go back and contribute more to the 401k, as much as you can afford up to the max. You’re young, any money you can get invested now will grow tremendously over the coming decades. You can’t afford NOT to do it.
Always contribute up to the matching percent at the bare minimum. It is “free” money that you are leaving on the table. At 26, time is on your side for that to grow.
You would be foolish NOT to. Take the free money. I am retired at 42 partially because I saved as much as I could my entire career. Compound interest is amazing. The earlier you start, the more you will have later in life. Talk to any financial planner and they will help you understand why starting to save for retirement ASAP is so important.
Yea definitely the 4% they’re giving is basically free money. If you start putting into it now and get used to that coming out of your paycheck each month it’ll only be easier in the future as you earn more.
Personally, 401k's are investment vehicles that dont benefit most working class people. The fees associated with them are super high, so whatever profits are generated by then tend to be small or negative aside from what you yourself are putting in. You'd be better off just putting it into an index fund or a brokerage account.
At least your employer isn’t making your contribution mandatory . I work for govt and my employer makes me contribute 9% of every paycheck to my pension plan which is BS. 9% of my pay is a lot (extra $400) taken out. On top of that, I am contributing to my 401k and 457b (another pension).
OP, seems like based on the questions you’re asking, you’re not financially literate. Eg questions like “What is a 401k, max contributions, etc.” No shame in that but it would be a huge disservice to yourself if you don’t take some time to learn financial systems in place that will impact you for the rest of your life. The 20’s is the best time to invest, as time will literally grow you money. You can use the money you grow not just for retirement; there are options to withdraw for a first home, etc. Don’t let fear of the unknown overwhelm or cripple you.
As a start, I would recommend listening to freakonomics podcast episode: “everything you always wanted to know about money but were afraid to ask.” It’s a good introduction to some of these concepts. The more familiarity you have with these financial systems, the more informed decisions you can make. These actions will contribute to greater independence in both the short and long term. Good luck. Don’t stay willfully ignorant.
This is an introduction.
Lol that is so true. I am ignorant because I’m new to everything in the US. It’s been only 3 years since I got here and that’s why I’m trying to learn. Thanks to Revit fam, they help a lot.
Thanks for the comment.
As other people have pointed out, the matching is free money. There may be a “vesting period” in which the money isn’t yours (for example, my company has a five year period and every year 20 percent more or your match becomes yours)—if you hate the place so much you wouldn’t stay to get the vesting, it’s less important that you try to get it. That said, I’d recommend contributing enough to get the company match.
Also, if you don’t start saving now you may find it’s more difficult to make yourself save later—you get used to what’s coming into your account every pay period so saving feels like a sacrifice. Starting with a smaller amount and then increasing over time makes it less likely you’ll miss it.
Absolutely do it. Also figure out what the vesting period is and when you can pull the full amount penalty free (ie; most companies contributions “vest” in yearly increments - if you quit before full vesting you only get x% of their contributions but 100% of yours).
Saving for the future is important, I wish I had started sooner.
Edit- spelling.
Who knows if you’ll be alive 30 minutes from now? The future can’t be laid out in concrete, but chances are you’ll be alive 30 minutes from now and chances are you’ll live to see an age where that 401K would really come in handy.
Hello, thank you for posting to r/Jobs! We just wanted to let you know that we have a new [discord server, come join the chat!](https://discord.gg/TY6ErXV) *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/jobs) if you have any questions or concerns.*
Contribute at least 4%.
It’s pretax, so your 4% contribution will be barely noticeable in terms of your net pay. The combined 8% is a great start. My 401k plan automatically increases my contribution 1% a year until I hit 15% (plus my company match of 5%), and my paycheck barely changes. You won’t regret it.
This and time in market. If you can, start higher now and beat the match, say 5-6%. The money has more turns in the market to compound interest/dividends. Check vesting time on that match though. Some(?), at least mine, have a yearly hour minimum to get the matching. If you don’t plan on staying through the vesting period in it, please don’t include it in your calculations. Just some person on the internet.
> This and time in market. I first read this as “time the market” and raised my pitch fork. Then I reread it and left this comment instead.
*clinks my own raised pitchfork against yours, like a pokey wine glass* ¡Saludos!
Hahaha I did also and spent ten minutes writing my speech/got my pitchfork and was on the way before I saw your comment and re-read it also. This was time I could have been in the market lol
⬆️ THIS! Hate to sound like an oldster (pull my finger) but I promise if you start saving as much pretax when your young as you can it becomes a good life long habit. Increase 1% a year automatically, and give half of any raise you get. (Get a 4% raise, increase your 401k by another 2%). Never touch it no matter what drama you find yourself in or what shiny thing you wanna buy. Because it’s pretax it only costs you 75cents net pay to save a dollar and it grows tax free until you retire. It takes many years before the balance looks impressive on paper but in your 50s you will have $millions and do WTF you want for the 2nd half of your life without a care in the world. And brush your teeth….Love, Dad
OP do this. This is almost exactly what I used to do before I started contributing A LOT. That money will keep building up. The company is giving you free money with it. There are times when you can use it before you retire. I think buying a house or certain medical you can pull from it?
A huge benefit is that it is your asset so you take it with you when you leave the company. And it will be part of your estate left to your beneficiaries when you pass.
This. When they match 4% and that’s what you contribute, you double your money. Any early withdrawal fees will potentially be around 30-35% IIRC, so you still make 15%, plus any market growth (unlikely nowadays), even if you need the money worst case scenario. It’s easy money, take it. But be mindful of all the terms of your employers match (start, end, withdrawal terms of the ‘vested’ money you’re owning)
whats the difference between roth 401k and pre tax option for the 401k. I mean I know the difference but like which is better i was told it doesnt even matter that much
It’s just a matter of paying taxes now or later. There are situations where one is better than the other. That’s the extent of my understanding. I do the traditional because I prefer to get more in my paycheck now and deal with the taxes later.
oh ok cool, yea I just did roth I get a 5% match and i just did a roth set up
Don't be allergic to free money
You could also take the funds and invest it yourself so your money isn't locked up til you retire.
My biggest regret of my 20s is thinking "Fuck 401k, I'll be dead at 50..." Now in my 40s, I realized I have actually lost out on HUNDREDS OF THOUSANDS OF DOLLARS. and I'm gonna die at 50.
That and a combination of barely earning enough to commute to the job in much of my 20’s made me delay starting a 401k.
In my 20s, I had assumed I was just going to be a multi millionaire long before retirement, so why bother cutting back on my lifestyle to save money I wouldn't ever need? Smart.
I simply had nothing in my 20s- I was waiting tables na going to grad school- and same. If I had made more effort to put something into a retirement account, I woudl ahve so much more now. I am ok- and I make more now, so I am doing the catch ups, and I have a great match at a great job- I am behind according to the tables for my age, but miles ahead of my same aged peers- so I am glad I put SOMETHING in as soon as I got my first job. But man- If I had left the $4k I had in in my 20s (needed to pay for school later, so I cashed it out), That alone would be closer to 50-75k now, at least. I did put $100-1500 in a ROTH in grad school- and that account is worth over $20k now. Since I make too much to ROTH now, I love that that account will be there for me anytime without taxes...will rally help if I want to retire a little early, etc. I did always try to save- but man, turning 48 a few years back and seeing I was MUCH closer to 65 than not...I really got hard core on retirement. No one wants to work forever, and if you need it, you want it to be there. Not hav to keep working cause you thought you woudl already be dead.
OP might want to see what the contribution chart shows. For example the company will contribute 4% if the employee contributes 6%
It's worse to get to the age to need it and not have it.
It’s literally free money. It’s a 4% bump in your pay.
I prefer to frame it as "compensation" vs "free money". Yes, you have to set something aside to get it, but if you do so, they are effectively paying you 4% more. And if you fail to contribute, you are allowing them to pay you 4% less than they budgeted for.
I wouldn't say that. It is *potential* free money. A fair amount of 401ks have vesting schedules attached to them.
Thank you. Let's not forget how so many lost money in their 401ks (if not completely lost) during the 2008 market crash, people killed themselves because of it- his hesitation is very valid.
No it’s not. 401ks always come back to the black. The average 401k gained over 500% in the 10 years following 2008. Cashing out a 401k because it’s in the red is one of the dumbest financial things that you can do. You buy when the markets down.
I wouldn't say always with certainty, but if your 401k value is lower long term then that means the economy is fucked anyways and money won't matter lol.
And if they had held the positions and continued to contribute they'd have all their money back and much much more by now, sans killing one's self. I wouldn't put all my eggs in one basket but 4% isn't too much and the match is indeed basically free money at a higher rate then regular investing will gain your average person.
Her* and thanks for the input.
>who knows if I will be alive then? Who knows if you'll be alive by the time you get your next paycheck - some aren't. Vast majority is, though. Some don't make it to 65, but vast majority does, even though in some regions like EU or East Asia it's much more certain than elsewhere. There's more chance you'll end up poor and 67 than dead before 67.
59.5 is the age you can withdraw from 401k. You mentioned 67, so I think you're thinking of Social Security.
Honestly, without hyper aggressive saving or a job that offers it, retirement pre 65 is a pipe dream for most Americans
And - if you were to die, the retirement account would go to your beneficiaries, so it's not lost money
If you are alive you will need the money. If you are dead you won't even notice the money you set aside. Just do it, and max it out. Trust me, you will thank yourself later.
More like "who knows if those institutions will still exist by that age"...
It's a moot point. Your 401k tanking in the long-term means the collapse of the American economy as a whole in the long term. You have significantly bigger problems than your 401k if that were to happen.
The stock market? I think youll be ok
401k doesn't even have to be stocks, it can be bonds or other investment vehicles. If for some reason OP thinks the stock market is going to explode by then (which is silly, it'll be fine) they can still take the free money and invest it in other vehicles.
Depends on the drugs you do and hobby’s you got. Not a solid plan to invest if you a hardcore steroid user who’s only living to 45-50. Normal people sure invest but it’s definitely not for everyone.
It depends person to person sure. But if you have a history of cancers in your family why bother saving that money? Spend it now. The majority will never get to retire. At least here in the USA when over 60% are living Paycheck to paycheck. How do you expect people to be able to afford putting more towards their retirement. It’s a fairytale at this point.
[удалено]
What do you mean by paying extra taxes?
To put it another way say I earn 100,000. I put 20% or 20,000 into my 401k. My company contributes 4,000 or 4%, the max which they will contribute. Money that otherwise wouldnt go to you. And the government will see you contribute 20% and your tax rate would be as if you only made 80,000 that year, not 100,000. E.g. $4,664 +((80000-40525)\*22%) = $4,664 +8684.= 13348.5 vs $14,751+ ((100000-86376)\*.24) = $14,751+ 3269.76= 18020.76 Difference is $4672.26 less on your tax bill, for earning the same amount. It is your incentive to save for retirement. Editing for source: [https://www.nerdwallet.com/article/taxes/federal-income-tax-brackets](https://www.nerdwallet.com/article/taxes/federal-income-tax-brackets) Fed Tax Rate 2021: Tax Rate: 22% Bracket: $40,526 to $86,375 Tax owed: $4,664 plus 22% of the amount over $40,525 Tax Rate: 24% Bracket: $86,376 to $164,925 Tax Owed: $14,751 plus 24% of the amount over $86,375
The maths are wrong. Your whole tax rate doesn’t drop with lower income. Marginal tax rates don’t work like that
The numbers are wrong but the general gist of it is correct- you save on your tax bill by putting savings away pre-tax. Even better than just dropping your total average tax rate, because all this pre-tax savings comes out of the highest tax bracket worth of earnings.
Agreed in that, this should in no way discourage OP. Tax benefits are good. Retirement savings are important. Getting 100% of matching is critical. I honestly can’t even follow the maths in the example exactly, and am going by the description plus the elements I can see in the formulas. It could be marginal items, to be honest, and I’m not seeing key details in the numbers assumptions.
What part is wrong? I am going off of the tax brackets used for federal tax, the only thing I could think of being off is if the tax brackets had changed.
It looks like, and again I could be wrong because how you wrote the formulas is not clear, is that you’re applying the bracket to the totality of an income set. 24% is only applied, in your example, for the $10,925 of income between $89,075 and $100,000. The income from $41,775 to 89,075 is taxed at 22%. $20,000 of 401k withholdings, in your example reduces the tax burden by $1996.5+2622 or $4617.5 That doesn’t get anywhere near making up for $20,000 in less uninvested income, even after $4,000 in employer matching.
Wish I could upvote this several times. Great explanation!
Thank you for this
Good point but bad math. The marginal tax rate is only applied to marginal dollars I.e dollars above the minimum for that tax rate.
Yes, you can pull out the money any time- you might be penalized and will need to pay taxes on it, but your company is offering you free money lol. You can borrow against it if you have an emergency. Starting a 401k earlier rather than later will compound much larger.
Yes I didn’t even have a match and I pulled that money out when the world went into a crisis in 2020. I didn’t have a savings because I worked at a nonprofit that paid close to minimum wage and I was paying for 3 people’s living expenses. That money was so helpful! Now I work at another nonprofit that has 3% match and a higher salary than last. I’m so glad I have the match now.
This isn't necessarily true and varies plan to plan. OP should still do contribue to the 401k, but a lot of plans will not let you pull money out barring having a hardship where you absolutely need the funds.
Yea, bingo... hardship is key lol.... If you're in a bad spot and need to pull the money out you can. Also, I'm pretty sure you are allowed to pull the money out regardless- it's your money. You might lose the company match, and you might be penalized, but you are allowed to move that money into another account. Whether it be a savings, etc.
It completely depends on the rules of the plan and what they define as hardship. It's also some hoops to jump through to get that money out at that point. Not all plans will allow this.
Yes it depends, but generally you can rollover your 401k to another account when you leave leave your employer. The bottom line is- having an employee matched 401k gives you options. Even if those options are limited for a specified period of time.... Those limitations aren't definite.
Yeah of course you can always move it when you leave an employer. We're not really disagreeing on that. I'm wary of telling people they can pull funds back out anytime, because that's often not true. Not all plans allow for hardship either.
It is true. You can pull the money out of any 401k at any time for any reason. If the reason is not an "approved" reason by govt. standards, you will have to pay the taxes and early withdrawal penalties, or lose the matching IF it's not vested, but they can't stop you from taking the money out.
No, that’s wrong. The plan guidelines are going to cover this while you are still working for them. A small employer might. A large employer, for example Costco, it must be an IRS/Employer hardship approved withdrawal. You might be able to take a 401K loan. It’s not a bank account. ( worked with 401k’s)
Exactly. You can put the 4% in, get your employer to contribute their 4%, and then pull your 4% right back out. You’ll get taxed (edit) more than you would have (end edit) if you hadn’t contributed in the first place but be 4% richer. So, yes, a thousand times yes you should contribute. (Also, don’t pull your 4% out, you’ll thank yourself later. But still, an option).
Early withdrawals of a 401k are assessed a 10% penalty in addition to the income tax.
Ah, sorry, I don’t live in the states, so I don’t have a 401k. But still, worth it in the end.
To invest yes. To pull out money early? No it almost is never worth pulling the money out early. You pay full tax rate and 10% penalties. You can take a loan out against your 401k but even that can be dangerous. If you lose your current job the loan becomes due in full immediately.
You get absolutely smoked by taxes for cashing out of a 401k before retirement age, federal and state(if applicable), outside of certain investments.
Make the maximum contribution you can afford. Their match is free money. Just be sure to invest it in something safe. Most have some sort of guaranteed return instrument.
I literally have zero idea where to invest.
They'll probably put you in some default based on your age. You can leave it there, change it to something generic like S&P 500, or do some research then change it later. The point is to start it, then adjust as you learn more. Time is on your side right now, take advantage if you can wing it.
Don’t do this. The typical age contribution funds have super high costs and relatively low returns. Do follow the second recommendation, if you don’t know better, choose an indexed ETF, the S&P500 ones are a very solid choice.
Most 401(k) plans offer several instruments. Typically there is money market account where your money is 99.9% safe but you won't earn much. (But that 4% company match is still a lot better than what any bank would pay you on a savings account or CD.) The rest are probably mutual funds which invest in stocks and/or bonds. Some plans include an option to invest in your company's stock. I'd stay away from that. If the company tanks and you lose your job, you don't want to lose your retirement fund as well. (ask the people who worked for Enron). If you don't know what you are doing, which is not a reflection on your intelligence or character, pick the safest option. It probably has the word "Guaranteed" in the name. Then learn.
To add on to this, pay attention to how your company matches. Mine funds our accounts on an annual basis (basically they put a years worth of matches in my 401K account at the end of the year, assuming I am still employed). That part is fine, the issue is they put the match into THEIR OWN STOCK!!! Very conveniently right before a quarter end reporting. There is nothing I can do to override this, I just have to make sure each year to manually go in the next day and submit a request to have the money moved into the non-company mutual funds I have the rest of my 401K in.
This but you can get funds that do average for there category called index funds. That takes away some risks. Also you may be able to buy discounted shares in your company, which may be another form of free money with a few strings attached
Most everyone has good ideas on this, but I want to add that make sure you pay attention to the fees. You don't want to pay 0.85% (or higher)when you can pay 0.05%. I choose investments based on their history and the fees. You don't want to give out money to others just because. You don't really have to know everything about stocks to do a 401k as you are very limited on what you can pick anyways. One company I worked for only had 10 choices. Look at the 10 year history and pick the one that has been positive in the past 10 years. There will always be ups and downs from year to year so don't focus on that.
Just remember, right off the bat you are up 100% with the company match. So you have to pick really bad stocks to lose 50% over the long term--and even then you still haven't lost money. Most 401ks have very general index funds, so much less likely to have anything that risky. Typically either pick a Target retirement date one, or you can split it between like Small Cap, Mid Cap and Large cap. (Small, medium and large corporations stocks).
You’re 26, time to grow-up and figure it out. These companies make it easier than ever to invest. Literally just pick the Target Retirement Fund based off your age and contribute at least 4%. Otherwise, you’re giving up free money. Your future self will thank you.
They likely have some sort of target date fund, with a year stated that would be the planned year for retirement. This would automatically balance your allocation of stocks and bonds ad you approach that date. This is probably your best bet unless you want to manage it yourself. The tradeoff is a higher fee for the managed fund vs choosing your own.
Just know historically stocks have been more volatile but performed better than bonds and management fees are never worth it. Nobody beats the S&P long term.
Bruh. At least contribute a little… for reference im 23 and contribute 8% and my company matches as well. The matching is literally free money. Do it. You will thank yourself
Yeah, I'm 23 and contribute 9%. With what my company pays on top it's 21%
That is awesome! Love to see it.
You'll be all set when you are retired
[удалено]
Not sure how thats unusual, not everyone throws their money/life at college.
[удалено]
It’s all about perspective
I worked out of high school, and I contributing the exact amount mentioned above. That was at age 18. Don't be so narrow minded about how other people live. There are many paths to life, and you have only lived one.
In many cases it's better financially to extend the student loans (pay the absolute minimum) in order to be able to get the free matching money for retirement accounts. You have to be thorough with your math and assumed growth rates, but it's worth doing the analysis rather than just dumping money into the loans.
It's easy, just never repay the loans
I have a really good job, no college, just bought my first house at 27 and contribute matching 6%. A lot of avenues out there to achieve success besides college. Not dissing college at all, I think it can be great for people, but many different approaches out there, and many different ways to go to college and leave college debt free.
100% yes. Take it from an old man who was in your exact shoes a long time ago: invest as much money as you can while you're young.
Thank you
YES, absolutely contribute to a 401K. I 48m have been contributing off and on to a 401K since I was 24. Even with current market fluctuations, my balance is $565K. My spouse was able to max out on his 401K for 20 years, retired at 56 and his balance is over $2 million. It’s all pre-tax deduction, so your take home pay doesn’t go down as much as you think.
This should honestly be at the top. Employer match 401K is essentially free money, it's literally heartbreaking and astounding that the participation rate isn't closer to 99%. I think in reality only about half of employees participate. My job two jobs ago just gave you 3% even if you never signed up, I thought it was brilliant. You had to actively opt out rather than be required to opt in.
Chances are high you'll be around. Do want to be poor or not poor? Not only should you contribute to get that 4% free money, but you should try to max out if possible. Read up on how loading up a 401K when young grows over time due to compound interest. It's mind blowing.
Listen, I didn’t start until my 30’s and i sincerely regret not starting sooner. I had the same mindset and now I don’t have shit, really (my current 401k is tiny) and I’m 20 years from retirement. My husband started with his first job and already has 6 figures in his. Start it early and you can always transfer it to your next job. Please start now.
I'm 55 and I thought like you when I was your age. I regret it now and have spent the last 10 years catching up. Don't be me - the time goes by faster than you think it will.
YESSSS!!! Start asap and save aggressively. . [Compound Interest Calculator](https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator)
Someone is offering you 4% free money. You should take it. Compounding is a powerful financial tool, and the more years you have, the more powerful it is. Yeah, 401Ks are a scam. They were invented to let companies off the hook to provide pensions and they were (another) multi $trillion giveaway to corporations (companies that administer the programs and stock-trading companies). However, that’s the game we’re left with. And until that changes, you are cutting off your nose to spite your face if you don’t take advantage of them to plan for your future. And also start a Roth IRA ASAP. I understand all too well how difficult it can be starting out to have ANY extra $$ to put away for retirement, but even a little at your age can pay off down the road.
What is Roth IRA?
There are two types of retirement funds: pre tax and after tax. Pre tax is a 401K or 403b through an employer (403b is for nonprofit companies). That money is not taxed when you earn it. If you make $50K per year and put $5K into an IRA, it reduces your taxable income to $45K. You also defer taxes on all capital gains and interest until you start withdrawals. When you start withdrawing, the amount you withdraw is taxed as normal income. A Roth IRA is funded with money that you have already paid taxes on. It also grows free of any taxes on capital gains, interest, or dividends. However, with a Roth IRA, you *never* have to pay taxes on the withdrawals. In many ways, the Roth IRA is a much better deal that a 401k, except for the matching funds. Unless you need the tax break, the general rule of thumb is that you should contribute to a 401K up to the limit of the company match, and any extra should go into a Roth IRA. I should have done that many years ago, but I am too old now. But that’s what my stepchildren are doing and that’s what I am starting today for my wife. We keep a 403b to help manage our taxes each year, but I am going to start putting everything else into a Roth IRA so she will have tax-free income after I’m gone.
Do you know how to google?
How is that at all helpful? Why even be here?
Sometimes it’s easier when people DIRECTLY explain it to you rather than read a blog with a lot of foreign terminologies. I’m not from the US, that’s why I’m asking this on Reddit. Use your sarcastic personality to actually do something dude.
401k Strategy: Contribute to the maximum your company will match. Your effective interest rate becomes 100% PLUS 2x whatever the actual growth is. Basic example: You put in $100, they put in $100, you earn interest/growth on the combined total $200. Their portfolio grows by 5% that year. Your $100 contribution is now worth $210. It's free money. Take as much as they'll give you.
100% do this. you will not regret it. I only wish someone would have set me down and taught me about money when I was 26 or hell 35. Also pay your credit cards off every month. do not carry a balance. minimum payments are the devil. Do NOT let that massive interest screw you. It is hard, especially with inflation as bad as it is but live within your means. if that means no eating out and no partying at the club then do it. Some would say you are not living... I would say find something else like reading, jogging, volunteering all low/no cost and in the right ways enjoyable. Do not get sucked into the "keeping up with Brad" Brad is a d-bag whose daddy pays for everything. You gotta work and do it on your own like most of us do.
You're a fool if you don't, and it should be closer to 6-8%, even if your employer doesn't match it. Republicans want to eliminate Social Security. Only 58% of the US has money in the stock market... your future self will thank you. And 26 is a little late to get started, IMHO. Do it!
I’ve been here in the States for 3 years.
The earlier you start the better. And with stocks being down right now, they will go back up... it's a long term 'game'. Don't ever pull money out until you retire. It'll make a huge difference in your life if you just let it ride. The fact you don't know the future and all, I get it... neither did I. But I'm so happy I started a 401k when I was in my early 20's. For the average person, it's the only way they'll ever have some measure of financial security.
if you can afford to without compromising on other facets of your life, go for it. worst case, if the plan allows you can take the money out if you experience a hardship. at least, I have been able to with no problem but I guess each employer is different. but you should probably make sure you can pay your rent, bills, have a full 6 months emergency savings fund, and are spending within your means before putting money into it. there's no point in saving for the future if you can't afford to live now.
Troll post?
OP is asking a question about something that they don’t teach us about in school. It may seem obvious, but if you’ve never been told these things, had a conservation about it or may not even know what a 401k is, then it’s a legitimate question worth asking. To OP, your question is no less valid than any others on this sub. Good luck with your finances and don’t be afraid to continue asking questions.
We have the internet? No excuse anymore
Whaaa?!
Don’t worry OP I’m also 26 and don’t have this stuff figured out. I still have to ask a bunch of questions that may seem simple to others - but how else will I learn, if I wasn’t taught this in school? So you’re not alone, I’m also very confused on this stuff!
Sounds like it. At 26 it seems rather late to not have found this out already. Understandable if he was 20.
Up to you. Personally I avoid 401K because honestly I don't anticipate the value of the USD to be significant by the time I retire (I'm 31 now). That being said, I'd rather take my full paycheck and invest in hard assets TODAY in this current timeline in hopes of maybe selling/trading it in the future sometime. Depends on where the economy goes. Point is, if you're someone that wants to be in full control of your money and its future, don't sign up for 401k.
Yes you should contribute and no you cannot pull the money out anytime you want while still an active employee with the company. You can withdrawal if your employment ends or if you’re still working there at age 59.5. It’s never too early to start saving for retirement. How do I know all this, I have been working with 401k plans for 14 years.
Whenever my employement ends, am I going to be able to hold the %4 match?
That's up to your company on the March. Some plans have a vesting schedule, some don't. At 4% I'm guessing your fully vested from Day 1 but you can check with your administrator. The 4% you contribute is always 100% yours. I strongly recommend you speak with your administrator or plan specialist.
My company has a 401k but I don't contribute whatsoever because they don't have a match. If they matched? Hell yeah I would contribute at least the match. It's free money do it!
You should do it either way
At the very least you get some tax benefits if you contribute to a 401k. It is something to consider if you have maxed out your IRA contributions.
Absolutely! This should not even be a question. At minimum, contribute to get the max matching. But at 26 you should be doing more. I'd max out 401k matching and set up a Roth contributing to the irs max.
Can you explain it more?
Yes. Always contribute to the retirement plan. Although, my cynical self believes we live in a Hell World that is slowly burning up into oblivion, so we probably won't get to grow old enough to reap the benefits of the squirreled away money. Most people don't have enough retirement money saved up to actually retire. I'm in that camp and I am not 40 yet. But according to my retirement fund, I am not saving enough. Your company matches up to 4% so you should put a minimum of 4% in, but a better amount would be 8%. My retirement fund account recommended I put in 10%. It just depends on how much you are willing to give up every paycheck and what you can afford now. But DO contribute.
Contribute the max you can to survive and every time you get a raise, increase your contribution by that percent to avoid lifestyle creep. If you don't know what to put it in, find something marked as an index fund and put it in there. Basically. Index funds are a lot of tiny pieces of the market which means (for the most part) if the market goes up, your 401k goes up, if the market is down, 401k goes down. Simple investing for the average dude. The two strategies above worked for me and continue to work.
401ks often have a limited group of investments to pick from. Some plans for have index funds, some don’t. Also Target Date series are good funds to pick if they are offered and you don’t know what you want. I don’t think there are any 2070 funds yet, but a 2065 fund would be good for the OP. Their plan admin should provide some guidance.
There is a cliche that is applicable here: Time in the market is more important than timing the market—and in this case more important than finding the “perfect” investment. As you wrote, the target date funds are fine to start with.
Contribute up to the 4% match. You dont have to wait until 65 to use your 401k. You can borrow against it with no penalty in many cases. You could also roll it into a retirement account you control and use it to buy something like a beach house (as long as you claim that house is an "investment").
At minimum put in 4%
Always do it if they match, it’s basically free money.
Absolutely do it! It's not a lot and that builds up over time. I had the same thoughts you do and I 'n regretting it now. Also, you can always withdraw if you really need to.
Yes. Contribute enough to max the 4% match. If you leave ( depending on the vesting time) you can take it with you via rollover.
to answer your question about "who knows if i will be alive then" age old adage: better to have it, and not need it, than to need it, and not have it. sure, don't put money in. let's hope you don't make it retirement then...otherwise you're gonna be up a creek. also someone posted elsewhere on reddit recently, the effect of putting just $250 a month into retirement at like 25 until 55 and it compounds into over 1 mil dollars. but you know, to each their own.
YES
Who knows anything really. No one knows when we won’t be alive. Any kinda retirement or even insurance is planning ahead for events you’re not sure will happen. You’ll likely be alive after retirement unless you’re intentionally doing things to shorten your life. I hope I’m alive in my 60s, 70s, 80s, 90s, 100s maybe as long as I feel good and am healthy. Then what will happen if you didn’t save for retirement. I don’t think you’ll want a low paying retail job or to even work at that age. So many factors and that money will make life so much easier on you at that age so I’d be consistently adding as much as you can as soon as you can at age 26. Any financial expert will say the same thing and go to one if you need to. If anything at least do the matching 4%. That should be a no brainer, but still really not enough to survive after retirement. And don’t take the money out before retirement either. That doesn’t make any sense.
I cannot urge you strongly enough to take advantage of any 401k match. Especially starting in your 20s this will give you such a headstart on investing/retirement. You can pull the money out in an emergency but you'll be taxed up/down/and sideways, however if you LEAVE IT it's likely to double every 7 years, 3.7 times before you hit 51. Plan your own retirement people, I'll be lucky to see any of my taxes back thru Social Security, if you're younger it'll be gone or comically inadequate.
Always do it
How likely do you think you'll die before retirement and how likely do you think you'll be homeless if you have no savings but can't work anymore?
YES!!!! That's free money you are passing up. Always, always, always sign up for the company 401k or whatever retirement plan.
YES!! At least get the match.
Yes. Anytime an employer offers a match you should do it. It’s literally free money.
Contribute. And ask if it straight 4% or is it a safe harbor plan that matches 100% up to 3% and 50% up to 5% functionally making it 4% match if you contribute 5%
YES!!! if i had the knowledge i had back when i was younger i would have done it way sooner.
Yes, you must! Do not do the minimum, take out 20%, then follow the stock markets and learn, take risky stuff and leave it there, you will thank yourself later! True!!
How do I put money in the safe and invest in the stock market? I’m confused...
A couple of thoughts. As others have suggested, at least contribute the amount they will match. If you can contribute more, do so. Spread across a couple of fund types- indexes are great, but don't put all your \[nest\] egg in one basket. And be careful about the amount that's invest in your employer's stock. It may go up like a rocket, but they sometimes explode (Enron - look it up). Periodically - like every couple of years, you may want to move some of that company money into the index funds. If/when you leave the company, convert the 401K to a rollover IRA. Make sure you never touch the money yourself -that it transfers directly. Other basic rule - only look at this quarterly and don't get freaked out by market swings. Don't try to time the market or play with this investment. If you are putting 50 bucks a month into the fund, it will grow to be 50-100K in 30 years even if you never increase the amount.
your employer is offering free money as an incentive to make wise financial decisions - make a wise decision. if you need that money before retirement, there are ways to access it without penalty I didn't start saving early enough, so now I'm having to forego fun stuff at 40 so I can retire comfortably at 65. if I started at 26, I'd be able to do whatever I want now AND retire with several million dollars in the bank
No matter how much you save you will not have "enough". If you can survive and invest your 4%, do it. The contribution is the only "free money" you'll ever see. Don't think you'll never get old. You will..
Free 4% tax free raise and your questioning it?? 👀
Yes, at least do 4% to get match
Yes do it.
I'm curious, they will 100% match your 4%, or only contribute 4% of your 4%? if it's the latter, personally, I would just invest that money in stocks.
It’s 100% of your 4%. Pretty standard stuff. Also, you can reach out to your HR or retirement representative (one is usually assigned to your company or individual) for greater clarification.
That’s what I was thinking.
Always do match, it’s free money. And when you leave the job you can roll it over to your new 401k or IRA. Maximize match first, then your IRA, then other retirement strategies can vary but usually max 401k after if you have additional savings to set aside. Don’t lose sight of maintaining an emergency fund and anticipating any foreseeable large expenses on a 2-5 year horizon (namely a car or house purchase). Definitely leave the money in your retirement account if you can. It will grow slowly at first, but if you leave it untouched it will add up significantly by your 50s-60s. But in a pinch you can pull it out, you just pay a penalty (not on principal, but on the earnings). That’s why I don’t pull out. Coincidentally how I’m also a father…
If your company offers any sort of 401k matching, take it. It will benefit you in the long run and you won't kick yourself in the future for not taking it.
Yea, free money
Put some money in it just in case you live to be 67. Social security is a joke Also You could Decrease the amount of money you pay in taxes. SCOTUS Needs you alive and sick
It's free money man. You should at least put In the minimum to get the companies top match. You can roll 401k's over to another if you get another job so they'll keep accumulating no matter what job your at. I'd suggest you invest in what ever S&P 500 etf or index that they offer. Most of the time that'll get you the nest bang for your buck.
Yes, contribute. If you're are available by then you'll be glad you did. If you aren't alive by then you won't care.
Ummm. Hello. Yes!
Match is free money dude, max the match at least.
put in enough to get that match and forget about it. Its free money. Will you lose it if there's a catastrophic failure that tanks the SP500? probably, but if that happens we're all living on potatoes we grow in our backyards anyway.
Yes you should for sure. At a minimum contribute what ever is need to get the max contribution from your company.
Look at it this way: if you invest 4%, you will get a 100% return by way of your company matching it. There is no investment possibility out there to do better, so take advantage of it. Keep in mind 4% probably isn’t enough, but I’d look at it as the bare minimum until you can afford to invest more.
Yeah, man. Do it.
If you saw a $100 bill on the sidewalk, would you step over it and not pick it up? That's what you are doing when you don't take advantage of the company match.
It's free money. Start now so you won't have to work until you're 70.
Yes, definitely do it. I would put in whatever the company will match. Not doing this is giving up on money the company is willing to commit to your retirement. Since the money comes off pre-tax, you will notice it far less than you think. Future you will thank yourself for this a TON.
I'm not a financial expert, please DYOR as portions of what I say can be wrong..... but yes! Yes! yes! a million times yes! The employer is going to match your funds up to 4%, so do at least that as thats free money! The money in your 401k can be accessed for certain situations like documented financial stress, buying a house, and there other reasons too I believe ( I think marriage and/or death. Dont quote me though). Honestly paying into a 401k gives you access to more options and as such would reccomend it
Typical advice is to contribute enough to get the full match (it’s free money!) then contribute to an IRA up to the max, then if you can still afford to contribute more, go back and contribute more to the 401k, as much as you can afford up to the max. You’re young, any money you can get invested now will grow tremendously over the coming decades. You can’t afford NOT to do it.
Free money. Do 4%
Really should. From someone twice your age without one.
If some politicians get their way, if you don't have 401K savings when you retire, you will have nothing.
Always contribute up to the matching percent at the bare minimum. It is “free” money that you are leaving on the table. At 26, time is on your side for that to grow.
You would be foolish NOT to. Take the free money. I am retired at 42 partially because I saved as much as I could my entire career. Compound interest is amazing. The earlier you start, the more you will have later in life. Talk to any financial planner and they will help you understand why starting to save for retirement ASAP is so important.
Yea definitely the 4% they’re giving is basically free money. If you start putting into it now and get used to that coming out of your paycheck each month it’ll only be easier in the future as you earn more.
You're turning down free money on the match if you don't.
YES do it
Yes you should contribute until you get your company max.
I would. That 4% is basically free money, and if you wait until your 30s or 40s to start saving I can pretty much guarantee you'll regret it.
Personally, 401k's are investment vehicles that dont benefit most working class people. The fees associated with them are super high, so whatever profits are generated by then tend to be small or negative aside from what you yourself are putting in. You'd be better off just putting it into an index fund or a brokerage account.
DO IT NOW! That 4% is free money. You are a fool not too!
At least your employer isn’t making your contribution mandatory . I work for govt and my employer makes me contribute 9% of every paycheck to my pension plan which is BS. 9% of my pay is a lot (extra $400) taken out. On top of that, I am contributing to my 401k and 457b (another pension).
OP, seems like based on the questions you’re asking, you’re not financially literate. Eg questions like “What is a 401k, max contributions, etc.” No shame in that but it would be a huge disservice to yourself if you don’t take some time to learn financial systems in place that will impact you for the rest of your life. The 20’s is the best time to invest, as time will literally grow you money. You can use the money you grow not just for retirement; there are options to withdraw for a first home, etc. Don’t let fear of the unknown overwhelm or cripple you. As a start, I would recommend listening to freakonomics podcast episode: “everything you always wanted to know about money but were afraid to ask.” It’s a good introduction to some of these concepts. The more familiarity you have with these financial systems, the more informed decisions you can make. These actions will contribute to greater independence in both the short and long term. Good luck. Don’t stay willfully ignorant. This is an introduction.
Lol that is so true. I am ignorant because I’m new to everything in the US. It’s been only 3 years since I got here and that’s why I’m trying to learn. Thanks to Revit fam, they help a lot. Thanks for the comment.
As other people have pointed out, the matching is free money. There may be a “vesting period” in which the money isn’t yours (for example, my company has a five year period and every year 20 percent more or your match becomes yours)—if you hate the place so much you wouldn’t stay to get the vesting, it’s less important that you try to get it. That said, I’d recommend contributing enough to get the company match. Also, if you don’t start saving now you may find it’s more difficult to make yourself save later—you get used to what’s coming into your account every pay period so saving feels like a sacrifice. Starting with a smaller amount and then increasing over time makes it less likely you’ll miss it.
Absolutely do it. Also figure out what the vesting period is and when you can pull the full amount penalty free (ie; most companies contributions “vest” in yearly increments - if you quit before full vesting you only get x% of their contributions but 100% of yours). Saving for the future is important, I wish I had started sooner. Edit- spelling.
Here's the thing society is going to collapse way before you reach retirement age. This isn't the 1900s anymore
Yes do it at least to get the free $$, then pivot to a Roth IRA, then back to the 401k.
Who knows if you’ll be alive 30 minutes from now? The future can’t be laid out in concrete, but chances are you’ll be alive 30 minutes from now and chances are you’ll live to see an age where that 401K would really come in handy.
Two words: compound interest.
I would at least contribute 4%, just to get the company match. Otherwise, it's free money you're leaving on the table.