If you’re a young professional just starting out in your career, odds are that stack of paperwork explaining your first benefits package might as well be written in Greek. Between the health insurance information, tax forms, FSA enrollment, and dental insurance enrollment (if you’re lucky), it’s enough to have any new employee feeling completely overwhelmed.
That folder on your 401(k) plan is just one more piece of the confusing puzzle, and you might be tempted to just leave that paperwork in an ominous pile on your new desk. A call to mom and dad or an older sibling might help initially, but all of the questions might just make you hang up feeing more confused.
Our advice is to resist the urge to panic or give up. The “I’ll just do it later” mindset is dangerous in this context because you’re losing valuable time when your money could be growing. Instead, sit down with the information provided by your employer and pull out the most basic pieces:
What types of retirement plans does your employer offer?
Look into the differences between the three major types of plans: 401(k), traditional IRA, Roth IRA to better understand your options and chose the plan that aligns best with your financial goals. Important things to look out for: when is your money taxed, what limits are placed on online casino australia annual contributions, and when can you take your money out.
Does your employer offer a 401(k) “match”?
For example, if your employer will make an annual match of your contribution to the 401(k) of up to 3 percent of your salary, then you would ideally make a minimum of a 3 percent contribution to take advantage of that match.
What percentage of you salary should you contribute?
As mentioned above, you should always contribute at least the minimum percentage your employer will match. If you can contribute more of your paycheck, we recommend you go for it. Ten percent of your paycheck is ideal as long as you will not be racking up consumer debt just to contribute to your retirement. Regardless of how much you put in, setting up an automatic contribution with each paycheck is a good way to keep yourself honest.
If you get stumped— ask someone! Your colleagues have all been through this process so ask them for advice. The HR department exists to help you navigate these waters as well so don’t hesitate to sit down with them and address any questions you might have.
Next week the questions continue: What happens when you switch employers or decide roll your funds into a new plan?