Explaining my 401k Match & 3 Benefits of 401k Investing - YouTube

Hey what's up guys, my name is John  and I'm an emergency medicine PA

And in today's video I want to  talk to you about your 401k or 403b

employer-sponsored retirement plan  and explain the 401k matching.

I will run you guys through my 401k.

I'll also talk to you guys about why  you should consider investing in a 401k

when you start your new job.

What is a 401k?

A 401k or a 403b if you work for a  nonprofit like myself is an employer  

sponsored retirement plan which allows  for tax deferred contributions and at the  

time of this video the maximum amount you could  contribute to a 401k or a 403b is $19,500 a year

with those over the age of 50 being  able to contribute a max of $26,000.

I have three simple reasons why you guys should  contribute to your employers 401k or 403b

The first reason is that the  money in a normal 401k is untaxed

until you pull it at retirement age.

So you are contributing money tax free.

Secondly is the money lowers  your yearly tax burden.

If two people who earn the same income  contributed maximum amount of $19,500

but the difference being one of them invested  in a 401k and the other one didn't...

The 401k individual would immediately save  

four thousand dollars and that is the advantage  of having your contributions being tax-deferred...

You are contributing more money and  you're saving money on your taxes.

The last big reason to invest  in your employer sponsored 401k  

or 403b is because many employers  will match your contributions

and guys that is free money

talking about to the tunes  of thousands of dollars.

The typical financial advice is to save into  your 401k up until you hit your employer's match

I will run you guys through an example because  

getting to the match sometimes is very  confusing and they don't give you examples

If you guys have any questions  or comments leave them down below

share what your 401k is

what the match is

I would like to see what other people are  earning or making with their 401k matching

My current plan states that my employer will match  3.5% of the first 6% percent of salary contributed

there is a two year vesting period

and more specifically they  say that they will match 100%  

of the first 1% saved and 50%  match on the next 5% saved

So what does that even mean?

Say hypothetically you made  

a hundred thousand dollars just so  that we use easy round simple numbers

They want you to contribute  six percent of your salary aka  

$6,000 a year and they will give you  a free $3,500 when you do that so  

$6,000 of your $100,000 is the amount you need  to contribute to maximize your employer's 401k

after you hit that point you could go  invest your money in other assets but  

this is what you need to do to get the full  employer match to maximize that free money

More specifically they will  match dollar for dollar your  

1% of total salary followed by 50%  of the next 5% of your total salary

so for the first one thousand  dollars that you contribute

your employer will match you  a free one thousand dollars

and then for every one thousand dollars after that

they will put up five hundred dollars,  that is the fifty percent component.

And even though for this example  they will match up to six percent

You could contribute 10%, 15%.

You can maximize the 401k.

All the money that you put in is  your money and that money will grow  

in the stock market or whatever plan  that they have set up for you so  

you don't have to stop at six percent but that's  what you need to do to get the full match.

Another factor in the 401k  plan is the vesting period.

There is a two year vesting  period so if you leave the company  

before two years you will actually  lose out on their employer match.

You will not lose out on your  contributions that is your money.

Some 401k plans do an all-or-none sort of vesting.

Right at the two-year mark...

Right at the three-year mark...

100% of the employers  contributions will be your's.

And others will do a more gradual,  gradient sort of contribution

So say, every year 20% of their  contributions will be your's.

This is sort of a mechanic to  make sure that you stick around.

The best thing for you as an employee is  to have a short vesting period because

Who knows what the future holds?

And the last thing you want is to think  that you're getting all of this free money

And then they snatch it away from you  because you didn't hit the vesting period.

A reason why you shouldn't  invest in a 401k or 403b is

If you think that you will be taxed  at a higher rate in your retirement

Then it actually will make sense to pay taxes now  

and withdraw that money tax-free  using something like a Roth IRA.

Another thing is that not all  employers 401k or 43b plans...

They're not with great investment  companies or they are poor plans.

I mean, sometimes these 401k  plans have really high fees.

You want to vet whatever plan  your employer is choosing.

Or if they let you choose something?

Great!

Because you could be losing a lot of money  based on the employer's plan that they choose.

Guys, I hope this video helped you out.

Quick shout out to my VIP patrons on Patreon  for directly supporting this channel.

If you guys enjoy wealth and finance  related topics check out my other videos!

Subscribe to the channel.

Hit that like button down below  if this video helped you out.

And as always guys, stay safe out there

Have a great rest of your day

Bye bye