Become Head of the Class in Retirement Planning 101

Group becoming head of the class in retirement planning

Congratulations to this year’s graduating class! Your hard work and dedication have paid off and you’re now on the path to a rewarding career.

As you begin this exciting new chapter of your life, you may not realize that aside from landing your dream job, one of the most important responsibilities you have as an adult is deciding which retirement plan is right for your future. In fact, when you start a new job, one of the first things you may do is enroll in your employer’s 401(k) retirement plan. Developing a retirement financial planning strategy in your 20s is essential to ensuring your retirement years are financially stable and comfortable.

To help you get started, here’s a few basic facts about 401(k) retirement plans:

  • Contributions to your 401(k) are tax-free and are deducted from your paycheck
  • Depending on the type of retirement plan, your company may offer to match your contributions
  • Most retirement plans offer financial investment options to help you create a diversified investment portfolio.
  • If you leave a position for a new company, you have three options: (1) roll over your 401(k) contributions into an Individual Retirement Account (IRA); (2) roll over your retirement funds into your new employer’s retirement plan; or (3) withdraw your 401 (k) contributions.
  • If you decide to withdraw any money from your 401(k) before the age of 59 ½, you’ll be subject to a 10 percent penalty fee.

Now that you understand the basics of employer-provided 401(k) plans, here’s some retirement planning advice to help you make the right financial investments for the future:

  • Take advantage of your company’s 401 (k) match—It’s likely your employer will match your contribution up to a certain percentage. Remember that it’s still “free money,” and it will help grow your retirement savings.
  • When you leave an employer, plan on either opening an IRA account or rolling over your retirement savings into a new 401(k) plan—Remember, withdrawing funds from your 401(k) will cost you in the end.
  • Consider opening a Roth IRA—If your employer does not offer a 401(k) plan, you may consider opening a Roth IRA, which would allow you to put aside a certain amount of after-tax income on an annual basis.
  • Meet with a financial planning advisor to help you manage your financial investments and understand how your financial and personal goals align.

Contributing to a 401(k) plan in your 20s is an effective financial planning strategy you can’t afford to miss out on. To learn more about setting up an IRA or Roth IRA, or to inquire about our professional retirement planning services, contact Focus Financial today.