Thursday, July 26, 2007


If your employer offers you a 401(k), you should contribute the maximum that they will match. Feel free to add more but at a minimum, you should put in what they'll match. For example, lets say that your company will allow you to contribute 6% of your income and they will match 50% of the 6%. If you earn $36K/yr ($3K/month), then you can contribute $180 per month to your plan. That means that your company will GIVE YOU FREE MONEY in the amount of $90 per month. Effectively, that is a 3% raise in your salary. The only downside is that in most plans you must wait a certain period of time (like 3 years or 5 years) to become fully "vested". All that means is that the money the company matches is not completely available until after the vested period. However, even if you leave a company before you are fully vested, the money you contributed is 100% yours and you can move to another 401(k) with you new company. That's called a "rollover".

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