April's Money Challenge: Finally Open a 401(k)

April's Money Challenge: Finally Open a 401(k)


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Learning to be good with money isn’t just about saving it. You want to grow it, too. If you have an employer-sponsored 401(k) and they match your savings, this month’s challenge is to finally jump on that.

How a 401(k) Match Works

There are a handful of caveats here, and we’ll get to them, but generally speaking, an employer 401(k) match is a great deal. Here’s how it works: a common scenario is a 50% match of your contribution (savings), up to 6% of your gross salary. So for every dollar you save, your employer will save 50 cents. If your salary is, say, $50,000, the cap equates to $1,500 per year. (This Calcxml 401 match calculator will give you a more accurate idea based on your own employer’s terms.)

That’s a lot of money! And it’s why most money experts say you should absolutely open a 401(k) if your employer offers a match. That said, a lot of 401(k)s are notoriously shitty, so let’s get to the caveats.

Why 401(k)s Aren’t All Great

Many 401(k)s come with high fees and limiting investment options. Make sure to look at the details of your own employer-sponsored account (we’ve told you how to do that here). Still, a match is almost always still a good idea, because it’s kind of like free money. So it’s worth saving enough in your 401(k) to get that match. However, if you still have money left over after that and you want to save it, consider opening an Individual Retirement Account (IRA), too.

Don’t Have a 401(k)? Open an IRA

Opening an IRA is also a good idea if you don’t have an employer that offers a 401(k) but you still want to take this challenge and save for retirement. We’ve written a start-to-finish guide on how to do it here.

Contributing writer, Lifehacker.com

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