Your 401(K) 101
If you are a working adult that clocks into a nine to five job, one of the benefit options that is most likely offered, is the oh so mystical 401(k) retirement plan. If you are like me then you are probably still confused on how a 401(k) Contribution actually works. At this point 401(k) is a code for “take my money and I'll get it back one day.” Well, let’s change that!
First and foremost, let's talk about how a 401(k) actually works. This kind of retirement “investment,” if you will, works as a savings account with exponential return. You (the employee) will contribute a part of your salary, and your job (the employer) will match your contribution, equally or less than what you contribute. The amount of contribution that your employer matches will vary. Employer contributions might be on the basis of $0.50 or $1.00 for every $1.00 contributed. For instance If I invested 5% of my $50,000 salary, ($2,500) and my company only matches 50% of my contribution($1,250). The total of $3,750 will be the max contributed into my 401k for that salary year. Depending on your needs you can always increase or decrease your contributions. However, the goal is to max out your contributions.
Depending on your employer, you may have the option of two different kinds of retirement plan options, the traditional 401(k) and the Roth 401(k). The Traditional 401(K), which is an employer-sponsored retirement savings plan, allows employees to invest a portion of their paycheck before taxes are taken out of their check. The Roth 401(K) is differentiated by the fact that contributions come out of the paycheck after taxes, but withdrawals are tax-free.
Remember, it is never too late to invest in your 401(k). If this kind of retirement aligns with your future goals, you can start paying into your 401(K) today. Connect with your HR department, and read on what offerings are available and how much they will match your contribution. Some employers will match 100% of your contribution and some will match as low as 20%.
https://www.forbes.com/advisor/retirement/what-is-401k/
https://www.techtarget.com/whatis/definition/401k
