.png)
Investing is the ultimate way to make your money grow with basically no additional work. Yes, NO ADDITIONAL WORK!
But a very important part about investing is it takes time, unfortunately, you can’t snap your fingers like Thanos, or at least most of you probably can’t 😉, BUT you can start investing early.Â
A 401k is a retirement savings plan sponsored by your job that has special perks. You put a certain amount into the 401k account and your employer can match your contributions, to a certain percentage. For example, if you put in 10k and your employer offers a 50% match contribution, then they would put in 5k. It's basically free money being put into the account! A 401k is offered by your employer as part of the benefits, however, not all companies offer this, so it is important to check the benefits your work provides you.Â
EXTREMELY important to note that the money you put into the account is pre-tax, meaning that the money you invest has not had taxes subtracted yet. Once money is put into the account, you have to invest it whether in index funds, bonds, or target-date funds. A post on these different types of funds you can invest in is coming up next!Â
You have invested your money, now what?! ESPECIALLY for investing, time is in your favor, but once you are 59 ½ years old you are eligible to take out your money. An important thing to note is that the money you take out is NOT tax-free. You have to pay taxes on whatever money you withdraw. The tax percentage is the same federal tax rate used on your income.Â
Some things to note:
Fees: depending on who your 401k sponsor is there may be fees of up to 5%
There is a limit on how much you can put into a 401k – for 2025 it is $23,500
However, people 50+ can add an additional $7,500 as a catch-up contribution
If you take the money out of the account early, you have to pay the IRS 10% on however much you took out, however, there are exceptions such as house loans or family emergenciesÂ
If you leave your company, there are multiple avenues you can take with your 401k
You can leave it in there
Transfer it to an IRA (individual retirement account)
Transfer it to your new 401kÂ
Taking a withdrawal but can come with a penaltyÂ
There is another type of 401k called Roth 401k which is the same idea, however the money you put into the account has already been taxed and when you take it out, it is tax-freeÂ
I know this is a lot! But understanding how this system works early, will set you up for success 🙃
Stay tuned for the next post about index funds!Â
Sources:Â