What is a 401k?
Financial expert Jane Chatzky deep dives into exactly what a 401K is and what you need to know to start one.
Transcript
[MUSIC PLAYING] You've probably heard your friends or family members talk
about their 401(k)s. And you might feel a little lost if you don't have one. 401(k)s and other retirement plans like them like 403(b)s
and 457s might sound complicated. But they're actually very simple. They're retirement plans set up by your employer for you.
To get going with your 401(k), you select a percentage of your salary that you want to contribute to your plan.
And your employer will take that money out of your paycheck before taxes and put it in your account for you.
Take a look at your finances to decide what works best for you to contribute. But try to get up to 10% to 15% of your earnings.
Some employers might fully or partially match your contribution to the plan. Then your company hires a separate company
to administer your investments. But you get to choose where to put the money. Mutual funds are a typical choice.
As your salary grows through your career, you can increase and shift your investments
to complement your income, your age, and the changing markets. You can even roll over your plan if you leave your job.
401(k)s are set up so that you don't dip into them until retirement. If you need to take the money out of them
before the age of 59.5, you'll typically have to pay income taxes on the amount withdrawn plus a 10%
early withdrawal penalty. It's important to remember that a 401(k) is a great way to save for retirement.
But it's not the only way. If you're self-employed, look into IRAs and Roth IRAs.
It's always smart to contemplate all your options before you start investing. How fit are your finances?
Take the free money fit assessment at sharecare.com for a personalized score and action plan for a healthy financial future.
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