You have just attended the HR Orientation at your new job, and you learned that your employer offers a defined contribution retirement savings plan: a 401k. Your employer will match 100% of your contributions to the plan up to a maximum of 5% of your salary.
You are offered two options:
- a traditional 401k, which allows you to contribute pre-tax money and defer paying taxes until you begin taking withdrawals in retirement.
- a Roth 401k, which allows you to contribute money that has already been taxed and take tax-free withdrawals in retirement.
You are also offered the option of choosing to increase your initial contribution amount by 1% annually, to a maximum of 15% of your salary.
After completing the chapter readings and viewing the “Saving for Tomorrow, Tomorrow” video linked in the Module resources, respond to the following questions:
- Will you choose the traditional 401k or the Roth 401k? What factors did you consider in making your decision?
- What percentage of your salary will you contribute? Will you choose the automatic 1% annual increases to your contribution? Provide specific rationale for your decisions.