For young adults, it is extremely important to start their 401(k) early to build up that savings for later on in life. Saving a million dollars sounds like close to impossible, but in reality it is more attainable than we originally thought.
There are 4 major questions everyone must answer, especially when starting a 401(k).
- Should I take full advantage of my employer matching contribution?
- How much should I contribute from each paycheck?
- Should I invest in a traditional 401(k) or Roth 401(k)?
- How should I invest my contributions?
Employer Match Contribution
Leaving no money on the table is key to raising your funds as quickly as possible. The most common formula is a 100% match for the first 3% of an employee’s contribution and 50% for the next 2%. This is an easy decision for most looking to invest in a 401(k).
How much to contribute
This is a harder decision to make because for the employer to match your contribution most companies require a minimum percentage saved. Keep in mind setting aside this money while still being able to afford to live with month to month bills and other expenditures.
401(k) or Roth 401(k)
The difference between the two is when you decide you want to pay taxes. With the traditional 401(k), you pay tax when withdrawing funds, with Roth taxes are taken out up front.
Investing
Look at all of the options on where to invest the funds. Depending on when you prefer to retire can affect where you invest and how quickly to money works for you.
For more information and a real life example of making these decisions, visit the link below!
The Kael Company would be happy to assist you in any questions you might have about starting these funds and for businesses looking for more information about these benefits for employees.
