Advice for College Graduates – Part Two

To continue with our series, there are more benefits to look into at your first job, other than your health insurance policy (which we discussed last week).  Although your working days are just beginning, it is never too early to think about your retirement. Ask about your company’s retirement plan immediately.

The most common account is called a 401(k) plan. The majority of working Americans use their company’s retirement plan as the primary retirement-savings strategy. Employees can make contributions to this account through direct deposit. This means your company will pull your contribution out of your paycheck automatically and before it hits your account. This will make it is easy for you to manage.

In addition to its ease of use, there are additional advantages to saving in your company’s retirement plan:

  • Your company may “match” your contribution.  If your company offers a match, then you should contribute enough to at least get the full match. For example, a company may match 50% on the first 6% of your salary.  So how much should you contribute today to maximize your employer’s contribution?  No less than 6% of your salary.  If you have an employer match available and do not contribute enough to get the full benefit, you are leaving money on the table.
  • Your contributions to a 401(k) and the return on your investments are tax-deferred, which means you do not pay tax on the amount you contribute or earn today.  Instead, you will pay taxes when your money is withdrawn (which is typically when you are in retirement and your tax bracket is low).

There is much more to the story of a company-sponsored retirement plan.  The main point in this post is take the time to learn about this benefit, and enroll in as soon as you are eligible.  Taking these actions can jump start your retirement savings!

For more information on 401(k) plans and other retirement funds, please visit the IRS website.

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