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Starting your first professional job is exciting, offering both a steady paycheck and the chance to dive into your chosen field. The paperwork that often comes with your start date, from healthcare forms to 401(k) enrollments, can be confusing. While HR can guide you through most of the process, they don't usually offer financial or investment advice related to your 401(k). Unless you studied personal finance, you probably aren't an expert, either. Here's a checklist to help you navigate the not-so-glamorous side of adulting.
Ask for plan details
After you find your desk and set up your email, ask the person who handles employee benefits to provide you with all the 401(k) plan details. You'll want to know the following:
- When can I start contributing? All companies are different. Some allow you to sign up on day one, while others make you wait three, six or 12 months to participate.
- Is there an automatic enrollment? If so, what is the percentage? Some companies set you up for automatic enrollment as soon as you are eligible; you probably signed that paperwork your first week on the job. If you don't know, ask. And ask what the default contribution percentage (how much is taken out of your paycheck) is, as it's usually set low.
- How much is the company match? This is how much (up to a cap) the company will match your own investment.
- What is the vesting period? To be fully vested means you are eligible for 100 percent of the company match. The time range varies depending on the organization and can be immediate or up to two years.
Start contributing immediately
Even small amounts add up. If you aren't auto-enrolled on day one, make sure you have access to the enrollment portal and sign up! Don't make the mistake of thinking that a few hundred dollars doesn't matter, and you can catch up in a few years. Thanks to the power of compound interest, even a a few dollars contributed in your twenties, add up to significantly more come retirement time.
Make sure to get the full match
Once you understand how much the company matches, contribute at least enough to get the full amount, though experts advise contributing more. Read the details if you are auto-enrolled. Often that amount is less than what the company will match, and you'll miss out on free money (once it's vested, of course).
Choose an appropriate investment mix
This is where you should consult an expert. Many plans grant you time to speak with fund advisors as part of your enrollment into the 401(k) plan. If you have a chance for a free consultation, take it. There are a lot of different investment strategies but the most popular mantra is to allocate more money to aggressive funds when you are younger, but everyone's situation is unique. This is where a financial consultant can help you understand your risk profile and maximize your investment.