After years of searching and waiting, my wife landed a career. Not just a job.
You know, the ones that come with health benefit and retirement options. Of course, as soon as my wife got the news, she came running to me.
Ooh, retirement options?
The position came at a great time, considering my wife is $75,000 in debt for her education. I also I have a hefty student loan debt of about $35,000.
Anyway, I’m subscribed to investopedia.com. And they flood my email with all sorts of tips and tools. But I saw articles about 401k options and I had to share.
Employers and HR personnel confuse people with percentages and dates of enrollment. Not to mention all the tax codes attached to retirement saving plans.
There should definitely should be more education about what these new employees are signing. Most of them (like myself) are happy to make concrete plans for our futures.
Like I explained to the misses, we can contribute up to $18,000 into the 401K in 2016. Right now, she contributes 5% of her gross pay (not net pay because it is pre-taxed contributions) into her 401(k) account.
Time. Time. Time.
When you are years (many years) away from retirement, time is your friend. Your money will sit in an account and collect interest.
The higher the amount in the account, the larger the return on your initial investment will be.
And what ever you do, DO NOT withdraw from your 401(k) . Regular federal and states taxes will be taken out of your withdrawal.
Us young bucks who are under 59½ years old will be taxed an additional 10%.
Are you serious?
Fidelity gave a good example if you decided to withdraw early from your retirement account. And by early, I mean withdrawing before the age of 59½.
The potential result: Cashing out $50,000 in 401(k) savings may leave just $35,000 in cash after 20% withholding and a 10% early withdrawal penalty.
In this example, you would lose $15,000 if you withdrew early from your 401(k).
We wanted to take full advantage of my wife’s 401(k) plan. She also has an option to max out the matching after some time with the company.
I promise to keep you posted about how the saving goes. We have about $1,100 invested and only $16,900 to go.
It’s a goal. Don’t pressure yourselves.
The Dollar Dad