Outstanding work on index funds! Now let's tackle one of your most powerful investing tools: your employer's retirement plan.
If your employer offers a 401(k) or 403(b), you have access to a tax-advantaged account that can turbocharge your retirement savings.
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Does your current or future employer offer a retirement plan?
Here's what makes these plans special: contributions come directly from your paycheck before taxes are taken out. This reduces your taxable income today!
If you earn $50,000 and contribute $5,000 to your 401(k), you only pay taxes on $45,000 that year.
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In simple terms, how does contributing to a 401(k) affect your current taxes?
But here's the real magic: many employers offer matching contributions. This means they'll add money to your account when you contribute your own money.
It's literally free money from your employer - like getting an instant raise just for saving for retirement!
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Why is your employer's match often called "free money"?
Common matching formulas include "50% match on up to 6% of salary" or "100% match on first 3% of salary." Let's see how this works.
If you earn $50,000 and your employer matches 50% of your first 6%, they'll contribute $1,500 when you contribute $3,000. That's a guaranteed 50% return immediately on your contribution!
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Isn't this useful?
Here's a critical rule: always contribute enough to get the full employer match. Not taking the match is like leaving money on the table.
If your employer matches up to 6% of salary, contribute at least 6%. You can contribute more, but never contribute less than the match.
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Why would skipping the employer match be a costly mistake?
