Just got a big corporate job and wanted to get your 401k rolling? This article will help you, and I keep it very simple.

Welcome. The decision to save money is an exciting subject for you and me. I want to take second to congratulate you for heading towards the right direction in making better financial choices. When you get your degree, start a real adult job, you need to think about how long you will be working and when is the right time to retire. Some might say it is too early to start, but starting now might save you millions of dollars. 401ks is one of the best option to get your finance ready for retirement.

In order to retire comfortably, a significant retirement saving is a great idea. For the majority of people, the only financial resource is that big chunk of money that you have been saving. In this blog, I will discuss this question: How can I save money for retirement? That’s when 401k comes into place.

WHAT IS IT?

This article contents general knowledge, so I am not going to deep into details about 401k. There are a million things you can talk about retirement accounts.

It is a financial plan provided by an excellent employer to have you stack money away for your retirement. I say a good employer because not all employers have a 401K plan for you.

Nowadays, companies will automatically enroll you in 401ks unless you decide to opt out. When the government invented 401k, no one knows what it was, the purpose of it and how to enroll. So to increase the enrollment rate, the company automatically register you.

HOW DOES IT WORK?

I have been a pharmacist for the past five years and worked with many different companies and corporates. All of them provide 401k. I did not enroll in all but only the one that I work full time. Every employer has its own company that helps control their 401k. Some use Prudential, Hewitt, or Principal.

The employers will give you the information on how to sign up/ log in the company website that controls 401k, how to navigate around the page, change contribution and such.

Related: Why I maxed out my 401ks

For instance, if your biweekly paycheck is $1,000 and you decide to put $300 away. $300 will be automatically withdrawn from your paycheck into your 401k account, and you will be able to track your 401k contribution by logging into the 401k company page.

The money taken out will be before your paycheck is taxed. I will dig deep into the benefit of this in a different blog… So keep reading.

Let’s say your employer choose Principal as your 401k’s company. Inside Principal website, there will be a variety of investment options that they put together for you to choose from. Some of the possibilities are Small cap, Mid cap, Large cap, International stocks, Bonds. If you decide the contribution money into three different plans: Small cap, International stock, and Bonds, the contribution will be invested in these three directions that you choose. The employer often matches employee contribution. And yes, I will explain that in another blog because it is a fun math topic to talk about.

Let’s say your investment is growing in money, you will not have to pay any tax on it until you withdraw your cash upon retirement. One huge misconception I want to point out is that: People think whatever you contribute into your 401k over the next 30 years of working, you get the full amount when you withdraw upon retirement. WRONGGGGG….

For example, if you contribute 500,000 into your 401k over the past 35 years. Now you are 65 and ready to retire, you are prepared to withdraw the full $ 500,000. Sorry, my friends…sadly to say that it is not the case. That $500k will be taxed. BUT THERE IS A DIFFERENCE about the tax bracket upon retirement. I will talk about it later on.

I hope you enjoy this one.

Have a wonderful day.