Im 18 years old and I want to save by having a 401K?

Question

I know that I can increase the amount of money I put into it through time but the only problem is I dont know much about investing. Any suggestions?

Answer 1

you can only have a 401k if you work for an employer (usually full time) If you do not work for an employer that offers a 401k then you need to get a ROTH IRA set up. A roth is basically the same as a 401k but it is an individual retirement account.. Roth the money goes in taxed and comes out tax free... 401k goes in tax free and comes out taxed. you can only put up to 5,000 a year into a roth and that is only if you claim at least 5,000 on you tax return for that year.

Answer 2

As you start saving for retirement so early in your career, I suggest that you consider Roth 401k instead of traditional one. Roth 401k offers no upfront tax breaks but promises tax-free income in retirement. With a Roth 401(k), you won't be able to cut down your annual income taxes, but after your retirement (when the tax rate may be higher) you will be able to withdraw your money or leave it to your heirs absolutely tax-free.

As for investing, just try to diversify your retirement assets across a broad class of stocks and bonds.

Answer 3

It's called the compounding effect.  It is very powerful and works in your favor the longer your money is in the fund.  In other words, if you start when you're 18 years old, you will have A LOT more than someone who starts at 30 years old.

If you do not know much about investing, I suggest you speak to a professional such as someone who works at the firm that holds your 401(k).

However, most work places will give you a 50% match, up to 6% of your gross pay.  So let's say you make $10 an hour (or $10 x 2080 = $20,800 per year), and you contribute 6% of your paycheck to it, which is $1,248 per year.  Your work will match 50% and give you $1,248 / 2 = $624.  That's great because that's like getting a 50% interest payment on your initial investment!

So don't miss out on this benefit.  No matter if you don't have money, do it... because you're just going to spend all your money and waste it on beer or something stupid anyways.

Always contribute the max that your employer will match.