Some employers also match a portion of their employees’ 401(k) contributions. This can make saving for retirement easier since it’s like your employer is giving you free money for your retirement. Each company has its own rules about matching, so consult with your HR department to learn how yours works.
How do you open a 401(k)?
Do the following to open your 401(k):
- Figure out if you’re eligible. Check with your HR department to see if you can sign up. Ask if you can sign up right away or if you must wait.
- Find out if you have to do anything to enroll. Some employers automatically enroll eligible employees in the plan but sometimes you must initiate the process. regardless, you will need to fill out the appropriate paperwork to enroll.
- Decide how much money you plan to contribute. This number will be based on your estimate of how much you need to save monthly to retire comfortably. You can usually choose between contributing a set dollar amount and contributing a percentage of each paycheck. Some employers require you to contribute a specific percentage to be eligible for the employer match so many use this to help judge how much to contribute.
- Choose appropriate investment options for your contributions. Focus on finding a low-fee option, like index funds and ETFs. Make sure you keep your money diversified between stocks and bonds and among many sectors to better shield you from significant loss. Investment advice can be found through a simple Google search and standard advice will suggest riskier investments in your younger years, allowing the potential for explosive growth and if you lose money, well then at least you have time to recover. These investments should be moved into safer options as you get older so to secure the value of your savings.
Ask HR about enrolling in your 401(k)
If you’re interested in opening a 401(k), talk with your employer to learn about how your company’s plan works. Some employers automatically enroll employees and withhold a default amount of their paychecks, which you can change yourself at any time. You can also opt to stop contributing to the plan if you’re not interested in doing so right now. But if you’re reading this, my guess is that you want to opt-in.
