There are many different ways to start saving for retirement. One of the easiest, if you work for a company that offers a 401(k) plan, is to sign up for it and take full advantage of its accompanying benefits. For those who are new to the workforce, using a 401(k) account may take some getting used to; in the paragraphs below, we’ll offer five general guidelines for using a 401(k) effectively.
It’s Smart to Start Saving Early
It’s never too soon to begin saving money for retirement, and as such, it is often prudent to sign up for a company-sponsored 401(k) now rather than later. Before you even begin work at a new job, ask the HR coordinator about the 401(k) options. In many cases, you will be able to sign up on your very first day of the job. In other instances, there may be a probationary period before you are eligible.
Your Employer May Match Contributions
Many employees who offer a 401(k) also offer to match contributions. The catch is that you may have to contribute a certain amount before the match kicks in. If at all possible, you should consider doing this, as failing to make use of the employer match is akin to leaving money on the table.
You Can Allocate Funds in Various Ways
Not all 401(k)s are created equal, and you will likely have the chance to allocate funds in different ways—including stocks, bonds, international investments, and other asset classes. This can all be a little daunting, especially if you have never invested before, which is why it might make sense to enlist the services of a financial planner.
Your 401(k) Has Tax Implications
How will your 401(k) account impact your taxes? If you have a traditional 401(k), you can lower your annual tax bill by contributing pretax dollars. A Roth 401(k), meanwhile, means the money you contribute is taxed but what you withdraw in your retirement is not.
You Can Roll Over Your 401(k) Funds
An Individual Retirement Account (IRA) offers its own set of pros and cons, and in some cases may be a better fit than a 401(k). You can actually roll over your 401(k) into an IRA, but doing so will require the guidance of investment professionals.
At Stonepath Wealth Management, we can help with 401(k) rollovers and more. Learn more by contacting a member of our team today.
Disclosure: Please be sure to speak to your advisor to carefully consider the differences between your company retirement account and investment in an IRA. These factors include, but are not limited to changes to availability of funds, withdrawals, fund expenses, fees, and IRA required minimum distributions.