I’m 21 years old and will be graduating from college this year. I am well aware that proper planning is important at a young age for retirement which is why I want to start on day one. I know a few things about investing but not .
My thought is that using my employers’ 401k plan is best as max contribution levels are pretty high. What about IRAs? What is the benefit/purpose of these over 401k plans?
How does one open a 401k, is it with a specific company or any bank? How are they managed (by me or someone else)?
What can invest in with a 401k (any limits or regulations)?
And any other thought anyone wants to add.

Thanks…

 

  • Dirk W 5:10 am on October 11, 2009

    ira suck, do a conventional 401k it helps bring you in a lower tax bracket, and if they match its great too, and i think the max is around 15,000 a year not for sure. but i know mine for example if i take 30 dollars to my 401k i am really only missing like 20 dollars plus they match so i made 80 dollars for free.

  • erin o 5:10 am on October 11, 2009

    You should start by contributing as much as your company will match.. because it’s free money and guaranteed. Once you’ve reached that you can contribute to a Roth IRA.

    The biggest differences between a 401k and a Roth IRA is the taxation. 401k’s are pretax.. So you will pay taxes on the money when you withdrawal it in retirement. Roth IRA is posttax.. so you don’t have to pay taxes on the money you withdrawal on it after retirement (there are specific age requirements for both. Right now it’s 59.5 I believe)

    So essentially what you have in your Roth IRA is what you get to keep. Where as 401k.. a chunk will go to taxes.

    The only reason to invest in a 401k is for the employee contributions as the investment options in most 401k’s are very limited. Unlike a Roth IRA in which you can pretty much invest in whatever you want.

    Most likely you will have an option to have someone manage your 401k for you for a percentage of what you contribute. I manage mine on my own because I don’t want to pay them (you still have to pay them even if you lose money).

    I hope I covered all your questions. Good luck!

  • growing inside 5:10 am on October 11, 2009

    401(k). You set them up through your employer. Your employer decides which bank or brokerage will handle them and what your investment options will be. Many employers will match some part of 401(k) contributions, so that is extra money for you.
    IRA’s give you more control since you can invest in anything you want and are not limited to your employers plan. You can have both IRA and 401(k)

  • Judy 5:10 am on October 11, 2009

    Always invest the maximum in your company offered 401K that the company matches – it’s free money.
    Some companies put in $1 for every $1 you put in.
    That instantly doubles your money.
    Only through a company can you get a 401K.
    /

  • Cameron L 5:10 am on October 11, 2009

    Dont listen to anyone who isnt an advisor for one. They dont have the knowledge and mislead far too many people that I have met with. You CAN have a pre-tax AND after-tax IRA, I have done both. 401ks are great, but if all your eggs are in that basket, and that basket is dropped, your toast like so many people are right now in this economic downturn. There are too many options to answer this question online. You need to sit down with an advisor so they can learn your entire situation. These meetings usually take about an hour when I conduct them and are necessary, there is no simple solution to retirement planning. If there was, I would not be employed. What I can say is the longer you wait, the more out of pocket you will need to contribute compared to starting sooner…..so start now, and let a professional in the field show you where and how.

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