401K: The perk that works for you

You're getting free money. Need I say more?

When accepting a new job, the benefits become the bonus points on the pro-list to remind ourselves the change is worth it. But bragging about the great 401(k) and employer-matching program an employer offers only holds weight if we’re actually planning on utilizing them.

We’ve been programmed to believe that 401(k)’s are one of the best and simplest ways to start planning for retirement. And while we aren’t denying that to be true, it’s difficult for us Millennials to explain why it’s so. So setting up a 401(k) seems daunting and overwhelming questions start arising …What do I invest in? Will the money actually grow? Is someone managing it? When can I touch it? What happens if I touch it earlier? And to whom do I ask all these questions?

It doesn’t help when we’re handed a thick packet we’re told “explains everything,” because most of us can’t translate the financial terminology to make any sense. Without understanding the system, we lack the motivation to take advantage of the opportunity.

If this sounds familiar, know that you are not alone. It takes some time and work to comprehend any retirement program, but knowing the benefits of them may just be the motivating fuel to get you moving.

Here are the incentives that will make your 401(k) so irresistibly awesome you’ll follow through on your good intentions and take advantage of it.

You’re getting free money. Need I say more? Finding out how much the company’s matching contribution should be the first thing you uncover. Let’s say, as an example, that the company matches $50 for every $100 you deposit from your paycheck, and that you get paid twice a month. So you’ll figure out that you’re being handed an extra $1,200 per year! Now I think that’s a value worth the upfront work.

Less money to the government. When you contribute money to a traditional 401(k) the taxes on that money are deferred, meaning you don’t have to pay income taxes until you take the money out during retirement. This is great for a couple of reasons. First, the more money going into your account means more money that’s invested, and subsequently appreciating in value. Second, when you deduct the money from your paycheck there is a lower amount of taxes that come out of your paycheck. Most employers now offer Roth 401(k) options which is after tax. Just remember withdrawals from Roth 401(k)s are not taxed but do have rules as to when you can take the money without penalties.

Set it and forget it. Usually contributing to your 401(k) is an automatic paycheck process, which means you set it up once and then don’t have to think about it again. And it’s fun to picture each month’s deductions like a payment to a little worker elf that’s making sure you’re going to be taken care of when you’re older.

Withdrawals are subject to ordinary income tax and may be subject to a federal 10% penalty if taken prior to age 59 .

Chelsea Castner

About Chelsea Castner

Chelsea Castner knows how important our 20’s are for laying a foundation of values and guiding principles for life. That decade’s pivotal decisions can make us or break us. Maybe it was growing up on a farm in New Jersey with three brothers, but facing and talking about the “tough stuff” is in her blood. That attitude allowed her to tackle financial challenges of being single, sharing an NYC apartment with two roommates, balancing a social life, all while taking her career up a notch and planning for future goals. As a Brand Strategist at New York-based marketing company Just Ask a Woman, Chelsea’s interviews with hundreds of women across the country (in person and even on their cell phones while at the checkout counter) have made her a go-to source when it comes to understanding women. Due to her strong curiosity to always know why she created Just Ask Y, a think tank to help Generation Y women grow to their full potential by examining new trends, forward thinking ideas and personal subjects. She looks forward to posting candid, proactive and practical advice that will help millennial women start building long term relationship with their finances.
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2 Responses to 401K: The perk that works for you

  1. Kym says:

    With the economy in treacherous times and the the the american dollar devaluing, should I pull my 401k? Im scared the market is going to crash again soon?

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