Hey what's up guys, my name is John and I'm an emergency medicine PA
And in today's video I want to talk to you about your 401k or 403b
employer-sponsored retirement plan and explain the 401k matching.
I will run you guys through my 401k.
I'll also talk to you guys about why you should consider investing in a 401k
when you start your new job.
What is a 401k?
A 401k or a 403b if you work for a nonprofit like myself is an employer
sponsored retirement plan which allows for tax deferred contributions and at the
time of this video the maximum amount you could contribute to a 401k or a 403b is $19,500 a year
with those over the age of 50 being able to contribute a max of $26,000.
I have three simple reasons why you guys should contribute to your employers 401k or 403b
The first reason is that the money in a normal 401k is untaxed
until you pull it at retirement age.
So you are contributing money tax free.
Secondly is the money lowers your yearly tax burden.
If two people who earn the same income contributed maximum amount of $19,500
but the difference being one of them invested in a 401k and the other one didn't...
The 401k individual would immediately save
four thousand dollars and that is the advantage of having your contributions being tax-deferred...
You are contributing more money and you're saving money on your taxes.
The last big reason to invest in your employer sponsored 401k
or 403b is because many employers will match your contributions
and guys that is free money
talking about to the tunes of thousands of dollars.
The typical financial advice is to save into your 401k up until you hit your employer's match
I will run you guys through an example because
getting to the match sometimes is very confusing and they don't give you examples
If you guys have any questions or comments leave them down below
share what your 401k is
what the match is
I would like to see what other people are earning or making with their 401k matching
My current plan states that my employer will match 3.5% of the first 6% percent of salary contributed
there is a two year vesting period
and more specifically they say that they will match 100%
of the first 1% saved and 50% match on the next 5% saved
So what does that even mean?
Say hypothetically you made
a hundred thousand dollars just so that we use easy round simple numbers
They want you to contribute six percent of your salary aka
$6,000 a year and they will give you a free $3,500 when you do that so
$6,000 of your $100,000 is the amount you need to contribute to maximize your employer's 401k
after you hit that point you could go invest your money in other assets but
this is what you need to do to get the full employer match to maximize that free money
More specifically they will match dollar for dollar your
1% of total salary followed by 50% of the next 5% of your total salary
so for the first one thousand dollars that you contribute
your employer will match you a free one thousand dollars
and then for every one thousand dollars after that
they will put up five hundred dollars, that is the fifty percent component.
And even though for this example they will match up to six percent
You could contribute 10%, 15%.
You can maximize the 401k.
All the money that you put in is your money and that money will grow
in the stock market or whatever plan that they have set up for you so
you don't have to stop at six percent but that's what you need to do to get the full match.
Another factor in the 401k plan is the vesting period.
There is a two year vesting period so if you leave the company
before two years you will actually lose out on their employer match.
You will not lose out on your contributions that is your money.
Some 401k plans do an all-or-none sort of vesting.
Right at the two-year mark...
Right at the three-year mark...
100% of the employers contributions will be your's.
And others will do a more gradual, gradient sort of contribution
So say, every year 20% of their contributions will be your's.
This is sort of a mechanic to make sure that you stick around.
The best thing for you as an employee is to have a short vesting period because
Who knows what the future holds?
And the last thing you want is to think that you're getting all of this free money
And then they snatch it away from you because you didn't hit the vesting period.
A reason why you shouldn't invest in a 401k or 403b is
If you think that you will be taxed at a higher rate in your retirement
Then it actually will make sense to pay taxes now
and withdraw that money tax-free using something like a Roth IRA.
Another thing is that not all employers 401k or 43b plans...
They're not with great investment companies or they are poor plans.
I mean, sometimes these 401k plans have really high fees.
You want to vet whatever plan your employer is choosing.
Or if they let you choose something?
Great!
Because you could be losing a lot of money based on the employer's plan that they choose.
Guys, I hope this video helped you out.
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Hit that like button down below if this video helped you out.
And as always guys, stay safe out there
Have a great rest of your day
Bye bye