What Is A 401k?

If you’re starting your first full-time job in college or right after you graduate, you might begin to hear a lot more about contributing to a 401k. But what does that mean? How does it help you? A 401k can actually help you prepare for your future when your career has just begun.

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A 401k is a retirement savings plan. Only an employer can sponsor one for their employees, and not all employers offer one. It allows you to choose how much money you want taken from each paycheck – before taxes are taken out – and deposited into the plan. So, any contribution you make will have great tax benefits.

Even putting just 1 or 2% of your paycheck into a 401k can make a big difference in the long run. But remember, it’s a plan for retirement, not savings. The money you invest in a 401k won’t be easy to withdraw, so don’t plan on accessing it for an emergency. The rules for taking money out are complex and there can be costly penalties.

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Sometimes, employers will also contribute a certain amount into your 401k. They might go so far as to match the amount you’re depositing from your own paycheck. Whether or not they do, you should contribute as much as you can afford to. It will be invested into different areas of the financial market, and the sooner you start investing, the more time it has to grow. You want to be able to pay all your bills after you retire!

So get that 401k started today. Got any more questions about this retirement savings plan? Leave a comment here or on our social media!