First Job

Wednesday, May 21 at 11:05 AM
Category: Personal Finance

Your first job is an important step on the road to adulthood and financial independence. If you haven't done so already, it's also a chance to start saving for future goals.

It may feel like there are now many demands on your income: rent, credit card debt, school loans or car payments. But workplace savings plans are one of the easiest ways to save.

Check to see if your employer offers a retirement plan, such as a 401(k) or 403(b) plan. Some employers automatically enroll new employees in such plans. But usually, you need to take the first step and enroll yourself. When you sign up, you'll need to choose the amount you wish to contribute from each paycheck, and where you want the money invested. You may have a choice of mutual funds, including index funds and target date funds.

Often, there's "free money" involved. Your employer may contribute a certain amount to your retirement savings plan and match contributions that you make up to a certain level. If, for instance, an employer contributes 50 cents for every dollar you save, that's an immediate 50 percent return. There is no other investment that will give you that kind of guaranteed return — don't pass it up.

Although a shrinking class, there are still some employers that offer traditional defined benefit pension plans. In this type of plan, the employer contributes the money, invests it, and pays a benefit to retirees based on their pay and the number of years they worked for the employer.

Whether or not your employer has a retirement savings plan, you can and should start saving with an Individual Retirement Account, or IRA. There are traditional IRAs and Roth IRAs. Each offer different tax advantages. Begin by speaking to someone at your local bank or credit union.

There are income limits on who can contribute to an IRA, along with annual contribution limits. Keep in mind that you can start an account with a relatively small amount and increase contributions later when your earnings increase and you have more to save. By starting early, you will need to save a lot less later on.

Finally, when you change jobs or think you need some extra cash, resist the urge to cash out these accounts and spend the money. Instead, consult with a tax advisor to see if transferring plans makes sense. Your new plan may have lower fees, which could increase your investment return.

Tags: Financial Education, Retirement
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