401K.101 – Ten Tips about the 401K
Easy Peasy
Most of have access to a workplace retirement plan, for example, a 401k, 403b, 457. This remains one of the easiest ways to save for the future.
Don’t Leave a Bag of Money on the Table
We may receive matching funds from our employer. At least contribute enough to capture all of your employer match. This is part of your compensation that your company has assigned to you.
No Minimum Balance Needed
Unlike with many traditional IRA or ROTH IRA accounts, we don’t need to come up with a minimum opening balance in order to start investing. We can simply invest small amounts with each paycheck.
Focus on the Why!
Focus on your goal: Why do I want to do this? What is the purpose?
How much?
How much of my paycheck would I like to consistently put away to prepare for a future when I still have bills to pay, but no paycheck to pay them? 1%, 2%, 3%, 4%, 5%, 6%, 7%, 8%, 9% 10%, 11%, 12%, 13%, 14%, 15%? It may be better to start small and get used to the change to your net pay, then adjust upwards on a regular basis.
Save Half of Each Raise
We can increase the amount invested with each raise. It’s easier to do this at a time when our income increases as we’re less likely to notice any difference in our net pay.
But I can’t afford it!
If you can’t pay your bills on 90% of your pay, how do you plan on paying bills with zero paychecks coming in?
Sign up and automate!
As soon as your eligible for a workplace plan at a job, sign up. You can also set up automatic contributions to retirement accounts outside of work (traditional or ROTH IRA).
Set it and forget it
Choose: ROTH 401K or Traditional 401K or Both?
- ROTH 401K – pay taxes now and never pay taxes again.
- Traditional 401K – delay paying taxes until I take the money out later in life.
- Both – I don’t know the future and I want to retain flexibility.
Just start!
Choose an investment (or investments)
- Keep It Simple, Stupid: Pick a target date fund: select an option named after the year close to when you may retire.