I didn't know what a 401(k) was until I started this job. There, I said it. Admitting it is the first step. But one of the best parts of this job is that as I learn things, I can share them with you!
Feeling a little shy about not knowing, I learned about the 401(k) plan when I started working at Michigan First. Catherine, one of our HR team members, was nice enough to sit down with me and explain what it was.
I quickly realized that as soon as we Generation Y people get our first professional jobs, we should start thinking about our future, and it's important to know exactly what we can do to get the ball rolling.
The Wall Street Journal has a great, jargon-free article on the basics of a 401(k). I'll highlight a few key points here, but you might want to take a gander at the article and start pondering where your ca$h money is going!
- Essentially, a 401(k) is a retirement savings plan that is sponsored by your employer. A portion of your income goes into this account before taxes are withdrawn, and you don't pay any taxes on it until you take the money out.
-In the past, employers offered pensions (which is a fund that paid steady income over the course of retirement), but this started to get very expensive, so 401(k) plans became the norm. (Some jobs in government or unions still offer pensions, though.)
-Nearly every employer that offers 401(k) plans will match your contribution. So if you put 3% of your salary into the fund, your employer will match that. Of course, there are some restrictions, so having a nice HR specialist explain your company's specific policies is always helpful!
-If your company goes under (which is, sadly, not unheard of in this day and age), your 401(k) is safe, and there are steps you can take to avoid paying fees and income tax on it.
Like I said, read the article to get a better idea of a 401(k). Even if you are still working part-time or in school and this doesn't apply to you, it will some day -- so get a head start!