Last Updated on March 24, 2025 by Ben
How to Set Up Your 401(k)
Setting up a 401(k) account is one of the best things you can do for your future. Not only does it provide you with tax breaks, but it allows you to save for retirement in a way that is convenient and easy to manage. Here are some tips on how to get started with your 401(k).
The Basics of a 401k Plan
Anticipate a 401(k) as an account where you can save money for retirement. The Internal Revenue Service (IRS) lets you save this money on a pre-tax or post-tax basis. Part of your paycheck is automatically invested in mutual funds, exchange-traded funds, or other assets. This money is put into your 401(k) account. In 2020, you can contribute up to $19,500 of your own money to your 401(k) account.1 If you are above 50 or older, you can put an extra $6,000 into your 401(k) account for a whole of $24,500. This will help you save for retirement more quickly.
Since the money you put into your 401(k) account is automatically taken out of your paycheck, you don’t feel like you’re losing anything because you never had it in the first place.
Many people ease themselves into retirement slowly, but there’s no need to wait if your employer offers a 401(k) plan. You can start saving for your retirement right away by contributing to the plan from the beginning of your career. Just be aware that, like other variants of investment or retirement savings accounts, there is a sanction for early withdrawal, and accounts fluctuate in value.
Why Open a 401(k) Account?
Contributing to a 401(k) plan means you don’t have to pay income tax on the money you save for retirement. You will not have to pay tax on your 401(k) balance until you take the money out of the account. If you participate in a 401(k) account, you may be able to get contributions from your employer. This will help you save money faster so that you will have more money when you retire. If you begin saving too soon in your career, the money will have more time to grow.
Here’s How to Put up Your First 401(k):
- Sign up
Many employers enroll new employees in the workplace pension plan. The employer will start with a low contribution amount, for example, 2% of the employee’s salary. The employer might also raise the contribution by 1% each year, but only up to a certain limit.
You can select to invest more or less in your 401(k) at any time. You can also change how you invest your money whenever you want. This can be a good idea if you want to save money or make more money. (see Step 5).
If the company has a stand-by period before new hires are eligible to enroll, set a calendar prompt for the day you’re allowed past the velvet rope. Make sure that your paperwork goes through on time so you can start earning investment gains as soon as possible.
- Choose an account type.
A traditional 401(k) is a standard option at most workplaces, but more employers are also adding the Roth 401(k) option.
The main difference between Roth IRAs and traditional IRAs is when you get your tax break: with a Roth IRA, you get the tax break when you put the money in, while with a traditional IRA, you get the tax break when you take the money out.
The regular 401(k) offers you the money upfront. This is because the money is automatically taken out of your paycheck before the IRS takes its cut. This lowers your income tax bill for the year. Later on, when you start making withdrawals in retirement, you will have to pay income taxes.
With a Roth 401(k), after-tax money is contributed, but when you withdraw the money in the future, it will be tax-free.
The earnings from your investments within both types of 401(k)s will not be taxed.
Another against the Roth 401(k) is that there are no income restrictions on how much you can contribute. This means that anyone can contribute, regardless of how much money they make.
The IRS lets you save money in two different ways: a traditional 401(k) and a Roth 401(k). Both have their own benefits. You can save up to $18,000 in a traditional 401(k) each year if you are under 50 years old or $24,000 if you are 50 or older.
- Review the investment choices
The 401(k) is a place to save money for your retirement. You choose the specific investments for that money. But you have to stay within the limits of your plan. Most plans provide 10 to 20 mutual fund choices. Each mutual fund choice holds a number of different investments. The investments are chosen based on how closely they match a particular strategy or market index.
Your company may select a default investment option for you to use. This option will be a target-date mutual fund. This fund will have a mix of investments that will automatically rebalance. This will help reduce the risk you face as you get closer to retirement age. If you’re not overpaying, it is a good idea to have someone manage your money for you. This way, you don’t have to worry about it. But make sure to do your analysis and find the right company to do this for you. That company should be able to help you make more money while also saving money.
- Compare investment fees
Investment costs can have a big impact on your investment returns. Make sure to review the fees associated with your company retirement plan and avoid any mutual funds that charge more than 1%.
The average charge ratio on an actively managed mutual fund is 1.31%. The average expense ratio on an automated index fund is 0.71%. Fees on target-date mutual funds are 0.94%. If you choose low-fee funds, you can save yourself a lot of money over time. This is because the fees for these funds are lower than the fees for other types of funds.
Employees cannot control how much the administrative fees are for their 401(k) plan. However, they should still be aware of how much these fees cost. Some employers cover these fees; others pass some or all of it on to employees based on the commission of assets each worker has in their account.
- Contribute – Get any employer match.
Almost all 401(k) plans have some good qualities. One of these is the free money you can get from your employer. To get this money, you need to contribute enough to the plan. How good a plan overall depends on many different factors.
Many employers offer a matching program. This means that they will match a certain percentage of your contributions up to a certain amount. Note that this may be subject to a waiting period, which means you may not be able to take the money with you if you leave your job before the waiting period is over. If you contribute money to the plan, it will always be yours, and you can keep it.
If your company retirement plan offers a lot of good, low-cost investment choices and it doesn’t have a lot of administrative fees, then you should contribute the most money possible to your 401(k) account. You can get tax-free investment growth and save on taxes with a 401(k) account. There are two variants of 401(k) accounts: the traditional version and the Roth version. With the traditional version, you save on taxes upfront. With the Roth version, you save on taxes later.
- Supplement your savings outside of a 401(k)
The IRS wants people to save for retirement. That is why the IRS allows people to save in multiple tax-advantaged accounts at the same time. If you combine a 401(k) with an IRA, you can save more money on taxes and have more financial privilege in the future.
Contributing to a Roth or traditional IRA is not just for people who have a bad 401(k). IRAs offer more flexibility and control for all investors when it comes to investment choices (limited only by what the broker offers), access to portfolio building and investment management tools, and control over account fees.
Recommended IRA Companies
Augusta Precious Metals
www.augustapreciousmetals.com
Star Rating
This company assists people in investing in gold and silver. It sells coins and bullion, which are types of metal that people use as investments. The company can also help you set up a Precious Metals IRA, which is a retirement account that uses gold or silver instead of stocks or bonds.
At Augusta Precious Metals, They pride themselves on providing excellent customer service. The team is skilled and well-informed, and they are ready to offer guidance and support to those who desire to invest in precious metals.
On its website, the company promises to be transparent about its fees and costs. They also promise to help consumers customize their portfolios so they can meet their specific needs.
American Hartford Gold
www.americanhartfordgold.com
Star Rating
American Hartford Gold is a company located in California, USA. They sell precious metals to investors who want to diversify their portfolios, as well as retirement accounts for those who want to make sure their money is safe.
The company specializes in diversifying 401k, TSP, and IRA accounts with silver and gold assets. This allows investors to include precious metal coins as part of their investment portfolio. If you are intent on collecting silver or gold coins, the company offers competitive prices on high-quality bars and coins. If you retire, you can choose to sell your gold or silver bars or just take them with you as they are.
American Hartford Gold is an empire-owned company that has a dependable data center that always works. That way, you can always find out about market trends. You can also get live precious metal charts directly, which will help you compare prices and tell your account representatives what you want.
Goldco
www.goldco.com
Star Rating
Trevor Gertz founded Goldco in 2006 as a company that sells precious metals online. The company’s main office is in Woodland Hills, California. The CEO is currently the president of the National Gold Group’s IRA department. The company has since grown to offer other types of retirement accounts, like traditional 401(k)s and precious metal IRAs. The main type of account the company offers is gold, but it also offers other precious metals like silver and platinum.
Goldco has won a lot of awards. In 2015, it won the Los Angeles Top Gold IRA firm award from the LA Business Journal. It also has strong relationships with other financial institutions, like Horizon Bank and Equity institutional, which gives Goldco a lot of financial security.
People can use a self-directed IRA to buy precious metals from a company. This is an easy process. Goldco customer service representatives will give you all the information about the precious metals you are interested in buying. You can usually sell your home through a website or over the phone. The company will help you with most of the paperwork.
Final Thoughts – How to Set Up Your 401(k)
A 401(k) is the way to go if you’re looking to save for retirement. Follow these easy steps, and you’ll be on your way to a more secure future in no time. And be sure to discuss with your financial advisor to make sure you’re taking advantage of all the tax breaks and employer matches available to you.