While the prevailing notion seems to be that people from my generation will never be able to retire, I figure it still doesn’t hurt to start looking into my 401(k) options. But I as I have so little experience in this area, I’ve needed to do some research to make sure that I understand everything that happens with my money when I invest in a retirement plan.
So for those of you who are about my age and also trying to learn about retirement accounts for the first time, here are some general ideas about how a 401(k) works:
1. You decide how much money you want to contribute to the 401(k) on a monthly basis. This amount automatically gets deducted from your paycheck and put into your account. Remember that there are contribution limits involved here. If your employer offers a match, try to contribute enough to the plan to get this match. Otherwise it’s like giving away free money.
2. Your company acts as what is known as the “plan sponsor.” There is then another company involved that actually does all the handling of your finances, which could be a mutual fund company or a brokerage firm.
3. You generally can choose how your money gets invested. Some people prefer to be more aggressive than others; it all depends on what your financial goals are and how quickly you’re looking to build up savings.
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