Financial Planning Tips for 401K Plans

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Curious about what is a 401K? Learn the benefits of 401k financial planning in this free video clip from our business expert.

Part of the Video Series: Financial Planning for Beginners
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Video Transcript

Congratulations, you just got your first job, and I know for a couple of weeks when I got my first job I felt like I was playing dress-up. But, one of the things that employers will do is give you a big fat packet of information for you to sign up for your benefits, and one of those benefits is a 401K. Do you know what a 401K is? A 401K is a retirement plan, now don't get scared. I know when I saw my 401K I said why should I invest in something that I'm not going to be able to touch until I'm sixty years old. Well, here are your answers, and investing in a 401K is one of the most critical decisions that you can make for retirement. One of the most popular benefits by companies, a 401K actually allows the employer to match money that you put in. So, let's take for example, an annual salary of $40,000.00. You've got your annual salary and you decide to save 6% of your salary. So 6% of $40,000.00 is $2,400.00 a year. That money is automatically deducted from your salary so you don't even see the money go out. It's the easiest savings plan around. Then, you have employer matches, and the employer often times can match dollar for dollar for that 6% that your contributing, so that at the end of the year you've only saved $2,400.00 but your employer match, you've got an account balance of $4,800.00. Why turn down free money? And, now a lot of plans provide provisions for you to be able to take money out to buy your first home. So, don't get discouraged that this savings account can't be used until you're retired, because it's not necessarily the case. You can borrow money for many purposes as long as you pay it back. Now, keep in mind, if you leave your company, you'll have to owe that balance otherwise it will be subject to income tax as well as an additional 10% tax penalty. So, be smart when you're withdrawing, keep it for the long term and use the money productively, like for buying your first home.

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