So, your financial coach tells you that you should be putting $600 per month in your workplace 401(k)—but you don’t know where the money is going to come from.
Enter … 401(k) magic!
First of all, 90% of companies with 401(k) plans will match employee contributions, and the most common option is to match 50%. For this example we will assume that is true, which means if you put in $400, they will add $200.
But wait, there’s more!
401(k) contributions are pre-tax. What does this mean? You know how the number on your paycheck is way bigger than what actually ends up in your bank account? For a change that will work in your favor!
Let’s say you are single and make between $44K and $95K per year. In 2023, the part of your income that is above $44k will be taxed by the federal government at 22%. If you left that $400 in your paycheck, after taxes you would only get $312. But if you put it into your 401(k), ALL $400 gets invested!
Since most of us do our budget using our take-home pay, if you want to put $600 per month away for retirement, and you get a 50% 401(k) match, and have an upper tax rate of 22% … the hit to your budget is only $312.
That is how 401(k) magic works!
Ta da!
Want to create a comprehensive budget that takes care of both what you need now, and what you will need in the future? I have helped many people do exactly that. I offer a free 30-minute intro session and affordable rates. My coaching is done via video call, and I do not sell financial products.
Schedule a call with me today and let’s talk!
