Retirement Plans

The most common type of retirement plan is a 401(k), which offers a tax-deferred means of saving for retirement. You’re allowed by law to invest a certain percentage of your income, before taxes, with the provision that you cannot touch the money until you retire (early withdrawals incur penalties, fees, and taxes). When you withdraw the funds at retirement, you will be taxed at that time.

Many employers offer a 401(k) matching plan, in which they match a certain portion of your retirement contribution. For instance, if you decide to put 5% of your paycheck into your 401(k), your employer might match all or part of that amount. This is, in essence, free money, so make sure to contribute what your employer will match.

The money you deposit in your 401(k) is always yours. After a certain time period called a “vesting period” (a year or so, depending on the state), the money your employer contributes also becomes yours, and it travels with you to your next job. If you leave before you’re vested, you forfeit the employer’s contribution.

  • Is there an employer match? In what amount?
  • What’s the vesting period?
  • What kinds of investments can I make with my 401(k) (mutual funds, money market accounts, etc.)?
 


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