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MVCU, 401k, retirement
Home / Tools / My First 401(k)
My First 401(k) on 8/29/2022

My First 401(k)

Think Pink

When you’re 25 years old, retirement seems so far away. Even though I have at least 40 more years in the work force (sigh) I still know that one day I am going to be burnt out from working 5 days a week- I already am! Eventually, I’ll need to stop working as hard as I am now to enjoy some relaxation except I can’t get to that point if I run out of money prematurely.

The problem is that when you’re in your early twenties, you’re trying to land your first entry level job, pay off your student loans, pay off other bills and save enough to move out of your parents’ house all while trying to have enough money for a social life. So how in the world was I supposed to save for retirement when I was already trying to save for the near future? Come to find out, it’s easier than I thought.

I was able to start saving for my retirement 90 days after I accepted my current position; this was when I qualified to participate in my employer’s 401(k) plan. Going into it, I generally knew what a 401(k) was for but the logistics behind it were foreign to me. In order to understand 401(k)’s more, I reached out to my company’s Financial Advisor to get some advice.

Here are the top takeaways I learned about 401(k)’s:

Learn exactly what it is that you’re investing in

It’s the easiest first step- learn what a 401(k) actually is! Essentially, a 401(k) is an account funded through pretax dollars. The funds within that account can then be invested into different stocks, bonds, mutual funds, etc. and none of those funds are taxed until they are withdrawn. So really, there is a huge tax advantage!

Check to see if there is a company match

Always check to see if your company offers a match because it’s free money! The most common match seen is “50% of up to the first 6% you contribute to a 401(k).” So for instance, if I earned $100 a paycheck and selected a 5% contribution, $5.00 of my paycheck would go toward my 401(k) and my company would contribute an additional $2.50.

Experts suggest that you contribute enough to get the full employer matching contribution but when it came to my contribution, I learned to go with what I could afford. I had a lot of expenses at the time and didn’t want too much coming out of my check, so I opted for a 3% contribution. When I started making more money and my company’s match got raised, I raised my contribution to 4%. At the end of the day, your contribution can be flexible. If you feel that you’re contributing too much or too little- change it!

Learn what a Vesting Schedule is

As I just mentioned, your employer is very generous if they’re making contributions to your 401(k). However, all that money they’ve matched isn’t truly yours until you’ve complied with the vesting schedule. A vesting schedule is basically the time it takes for you have full ownership of your employer’s 401(k) contribution.

For instance, let’s say that my 401(k) plan is on a five-year vesting schedule that gives 20% ownership after the first year and then 20% more each year until I gain full ownership (100%) after five years. After two years, I would be 40% vested! If during those 2 years my employer contributed $5,000 but I left the company after just 2 years, I would keep only $2,000 of the $5,000 matching contribution (0.4 multiplied by $5,000) and forfeit the other $3,000.

Understand that your 401(k) is “portable”

A large benefit to having a 401(k) is that it can follow you throughout your career! So if you were to switch jobs, your 401(k) doesn’t suddenly vanish. In fact, there are several options you can decide on to continue contributing to your 401(k). For example, you can completely roll over your 401(k) into your new employer’s 401(k) plan.

Investing in your future doesn’t have to be scary! I frequently pay for $300+ flight tickets (long distance relationship), have several monthly bills to pay and have a slight clothes shopping addiction yet I am still able to put money aside in a 401(k). If I can do it, you can do it too!

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Category: Saving & Investing Money



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