From
Your Perspective:
Early bird retirement investing
Employer retirement
plans
If you want to take advantage of all the tax benefits
possible — and why wouldn’t you? — one of the
best ways is through a retirement plan sponsored by your employer.
Most companies offer a 401(k) plan.
Employees at not-for-profit
organizations participate in 403(b)
plans, and government employees participate in 457
plans or thrift savings plans.
What all these plans — also known as salary
reduction plans — offer is the right to take
money from your pretax salary and put it into an investing account
that you control. You won’t be able to withdraw the money
until you turn 59 1/2, and you’re required to begin withdrawing
after you turn 70 1/2.
The biggest benefit of a 401(k) plan is your employer’s matching
contribution — money that
is added to your account, based on the amount you contributed.
Not all employers offer matching, and if yours doesn’t,
it may make sense to consider an IRA instead. But if your employer
does, it’s in your best interest to contribute enough to
get your company’s match. Think of it as a raise to your
salary, or free money.
1. Find out if your employer offers a retirement plan, and when you’re eligible to join.
2. Ask what the minimum and maximum contributions are, and whether your employer matches any contributions.
3. If you can afford it, contribute the maximum amount allowed. If you can’t manage that, you should put in at least as much as your employer will match.
SIMPLES
Small businesses with fewer than 100 employees sometimes
offer a SIMPLE
(Savings Incentive Match Plan for Employees of Small Employers)
plan instead of a traditional 401(k). An employer
can match contributions to a SIMPLE plan up to 3%
of an employee’s salary. Alternatively, an
employer can choose to contribute 2% of an employee’s
salary, regardless of whether the employee makes contributions.
