If you’re new on the career path, you’re likely a newbie to receiving full-time funds and benes (benefits) to boot. However benes are sometimes beyond us because companies often opt-out of walking new employees through the basics—just a packet on your desk and a set of forms to sign and return. A little help, then, can go a long way as we look to the options our employer is offering. Get ready for the bene basics, an introduction to the 401(k).

What the heck is a 401(k)?

In money-speak, a 401(k) is a deferred compensation retirement savings plan offered for the benefit of employees of most private firms.

To you and me, a 401(k) lets us save a chuck of our pre-tax paycheck into an account we’ll manage, so we can grow up nice and tall and not spend our retirement eating frank-and-beans from a can.

Our 401(k) can grow in two ways: (1) Some employers help out, offering “matching” contributions to the initial chunk we contribute; (2) We can make our money grow by investing in stuff like mutual funds or private stocks.

And my employer will enroll me how?

Frequent employee faux pas number one: assuming your employer will automatically enroll you into the retirement program.

Just because employers offer 401(k) or other plans (like a 403(b)), it doesn’t mean there’s anyone who’ll magically enroll you. You have to choose to enroll; you’ll have the get the forms in for yourself.

When you fill out the forms, you elect the amount you’d like to contribute to the plan. Then, like magic, that amount is deducted from your check each pay period. The best part? The amount is deducted pre-tax, making the percentage you allot to your 401(k) a bigger chunk of the overall pie.

Will I get a free toaster with that?

Toaster, no, free money…very likely. Many employers offer “matching” funds to those who contribute to a 401(k). Action-item number one on your just-hired to-do list should be investigating whether or not your employer offers matching. If they do, you should commit yourself to the plan ASAP, as employer matching is the equivalent of free money…Woo Hoo!

Defer every dollar you can up to the amount that your employer is willing to match. After all, if your employer matches your contributions dollar for dollar, you’ll double the amount you’re putting away.

In addition, your 401(k) allows you to invest your funds. Any tax you’re responsible to pay on the money you make is deferred until you cash your fund out in the future. In simple speak, this means our money can grow without being dinged by Uncle Sam at every juncture along the way.

Pay attention though; know what’s up with your 401(k). Yours is not mine; mine is not my dad’s; my dad’s is not my cousin’s. All plans have different specifics. All plans let you invest your 401(k) money differently. Know your plan, your provider, your options, your … ok, you get the idea.

If your employer doesn’t offer matching, well, that makes the choice to enroll in your 401(k) a different matter. The money you’ll put in is simply the same as money you might invest elsewhere: just dollars you’ve saved to an investment you choose. But consider this first, if you simply can’t save unless the money magically disappears before you have a chance to spend it, a 401(k) might be a good option for you as you learn to save for your future. After all, you can’t spend what you don’t see.

So I’ll be rich now, right?

Perhaps. But keep in mind retirement plans are just that, for retirement. You’re not going to be generating useable, short-term funds with your 401(k). The funds aren’t yours to spend until you’re bit further on in years, 59.5 to be precise.

This is good and bad. You’ll probably be tight on funds as you begin life in the working world, but you also want to save, as you’re likely to make it into your 50s and will want to leave the office behind at some point.

Also consider this, when employers match dollar for dollar, you’re making a return of 100 percent on your money. You’re unlikely to find such an investment anywhere else … well unless you’ll be going to jail soon and then, well, that’s another article.

The bottom line is this: the sooner you begin to save, the more money you’ll have when you retire. If you want to be rich, it’s a long, patient road paved with persistent contributions from your paycheck.

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