How 401k works?

Question

My company matches upto 5% for my 401k but i dont understand why i have to choose funds? Will they not match if my funds pick dont reach a certain level or is it extra money on top of my match. im confused.

Answer 1

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Answer 2

It's simple....you put in 5% and they will put in their portion.

Ex: you contribute $5 and then they put in $5. Now you have $10 to invest. Then if that investment does well, it goes up.

It will be invested even if you don't chose a fund. More than likely they have picked a "default" investment for those that don't make a decision. So, just ask them which investment they picked.

If you don't like it, ask about "target" retirement funds. No research necessary on your part. They fund does the work for you.

Answer 3

Whoa ! You need to start at the very beginning...( don't they have some pamphlet or something explaining this?)

...I'll just touch the highlights... a 401k is a " retirement "plan offered by your employer..( but run by someone else: an investment company...)  you take money from your pay and put it in...this company will invest it indifferent types of companies in the U.S and elsewhere... they invest it in " mutual funds"... ( that's what you are going to choose...which kind of fund... I know it all sounds way too complicated BUT IT'S NOT ...hang in there ..you'll get it , soon)

So..you're going to pick something... to start you'll want maybe 30% in large cap  ( big American companies...) then maybe 30% in  mid-cap or small-cap GROWTH ( smaller companies that you hope will grow like crazy and make you some money )... and then 40% in anything they offer in " international" or " global"   if they offer two ..split up and get into both..( sad to say but it's just where business is booming for the last few years...and good business means money for you.)

...now as far as talking about  a " match" it just means that the people you work for will put the same amount of money into YOUR funds as you do.... up to 5% of your pay...So you are getting 5% more from your boss than someone who doesn't sign up for the 401...understand that ?  You are not getting the money right now ...but whatever you put, in they put in...

and the more money that goes into your " funds"...the more money you will end up making...wayyyyy down the road.

It is a great thing... you won't miss the little bit you put in every week ...and it CAN add up to QUITE A BIT...and it will always be there for you.

In a while ( three months or so ) you should start getting reports from the company that runs the plan...it will show you how much you have put in...and what you have made on your money.... it'll start out looking pretty measley...BUT GIVE IT TIME...

In those reports ( or on the internet) you can also see what all the other funds that you first looked at. are doing..see how they compare to your funds....as time goes by if something is way better than what you've got ...you can easily change.... by phone or on-line if your plan is set up that way...most are.

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