In this episode of Pink Money, Jerry Williams tackles a common workplace shock: automatic 401(k) enrollment. When a listener panics after finding their paycheck suddenly smaller, Jerry explains why employers are allowed to do this, how automatic contributions work, and why it’s ultimately designed to benefit you.
From target-date funds to money markets, pre-tax vs. Roth contributions, and employer matches, Jerry breaks down how to make the most of your retirement plan. He also shares practical advice on what to do if you’re strapped for cash, how to adjust contributions without missing out on “free money,” and why starting early is key to building long-term financial security.
A clear, empowering guide for anyone navigating retirement savings—whether you’re just starting out, catching up, or simply confused about where your money’s going.
💬 Have a question or comment? Contact Jerry here
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Transcript
Episode Transcript
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UNKNOWN (00:01):
Bye.
SPEAKER_03 (00:53):
Hello and welcome to the Pink Money Show.
My name is Jerry Williams and inthis podcast we talk about all
things related to money from agay perspective.
And, you know, one of the thingsthat happened to me recently was
I got asked a question, kind ofa panic call, if you will,
because I had someone who gottheir paycheck and then all of a
(01:17):
sudden they realized that it wasshort.
So it wasn't the amount thatthey were expecting.
And when they looked a littlefurther into it, they realized
that their employer has startedwithholding for a 401k.
And which was alarming to themis that they had never signed up
for a 401k with their employer.
(01:38):
And so they were curious,anxious, mad, everything at the
fact that my employer started totake money from me And I don't
know where it's at, and I don'tknow why they did that.
And they wanted to know what arethe repercussions, what can they
do, et cetera.
(01:58):
So I explained to them thatactually their employer does
have the right and the abilityto automatically enroll them in
a 401k plan.
There is a section in the IRScode, number 414W, that allows
for automatic contributionarrangements.
(02:20):
So as of 2006, when they passedthis law, they set up the
ability for contribution ratesto be automatically withdrawn by
employers for their employees.
Now that may sound kind ofstrange, right?
Because you're like, what?
How in the world are they goingto be able to take my money from
(02:45):
me without me?
So the whole idea behind thisconcept was, of course, people
don't generally save enough forretirement or they start much
too late saving for retirement.
So it's always better to startearlier because then you have
the power of time working onyour money.
So The earlier you invest, thelonger you have to let it sit
(03:09):
and do its thing.
You know, the more money you'regoing to have in the long run,
plus, you know, thecontributions that you
continually make on an ongoingbasis.
That's how, you know, you end upwith a nest egg of a million and
whatnot, you know, if youconsistently do it.
And also saying that if you arelucky enough to have some
matching contributions from youremployer, and if you also should
(03:32):
be lucky enough to be able toput in the maximum amount that
you can into your 401k.
So all that taken intoconsideration means that the
idea was, just like SocialSecurity, they withhold money
for you, and then ultimatelywhen you retire and you start
(03:56):
withdrawing, You've contributeda certain amount of money, and
then you're able to reap thebenefits of that, and the
government starts giving youthat money back.
Similarly, with your 401k, your403b, those kind of defined
contribution plans, then it'sthe same thing where you put
money into it, and ultimatelywhen you retire, then there is a
(04:18):
nest egg for you to withdraw onand live on.
And that can generally justsupplement your Social Security
so you're not living on justSocial Security, which is
usually not enough for anybodyto really essentially live on.
And that's kind of another storyin and of itself.
But back to the whole idea here.
(04:39):
So I explained to them that theyautomatically had money taken
from them and 401K was set upfor them and that they needed to
get a hold of their employer,their employer, manager, their
HR department, or, you know,whomever is their point of
contact and get the paperwork,the 401k packet that describes
(05:02):
who the company is, you know,who is the custodian of their
money and what their investmentchoices are.
Because very, very often whenmoney is withdrawn, it will go
into a very conservative type ofan account, like maybe a money
market.
Or it could be something, ifyou're lucky, like maybe a
target date fund, meaning theportfolio is geared towards the
(05:31):
year in which you wouldessentially retire.
So let's just say, for example,if you're, I don't know, 33 and
you retire at, let's just sayage 60, for example, that's 27
years.
So 27 years from this year,2025, and we're looking at a
(05:51):
2050, 2052.
Well, the target date fund of2050 would probably the one you
would go into because it'sstructured in a way that it's
more heavily laden in stocks andusually more aggressive, um, so
that it's, again, heavilyweighted in, you know, big
(06:16):
companies, small companies,medium size, and in a
quote-unquote aggressiveportfolio that is designed to,
again, slowly adjust over timeautomatically and will become
more conservative, moreconservative as time marches on.
So it's just a simple set it andforget it in an easy way, you
(06:36):
know, to...
put your money into somethingthat, again, is going to work
for you.
So the whole idea usually is theyounger you are, the more risk
you can take, and the older youget, then the more conservative
you want to be because you don'thave the luxury of time any
longer when you're, you know,fast approaching, you know, your
retirement years.
If you're in your 50s, you don'twant to be going into a very
(06:58):
aggressive fund because if themarket happens to, you know,
crash, you're It can takeupwards of maybe 10 years to
recover.
So if you're already in your 50sand you've got that 10-year time
frame and you've just got 10more years you've got to try to
make up, it just doesn't workout for you.
So you might have to delay yourretirement, et cetera.
So you don't want to do that.
(07:19):
The whole idea, unless, again,you are just willing to roll the
dice and you're like, hey, letit go, but that's up to you.
But again, the more...
a common strategy is and whatmost advisors would probably
tell you is invest aggressivelyearly on in life, as long as you
can, again, take it, you know,you don't worry about it, you're
(07:40):
not going to look at yourportfolio every day or, you
know, and freak out if themarket drops 2050%.
You know, you're just going tolet it stay in there and
continually buying regardless ofwhat the market is doing.
And then ultimately, As timemarches on and you rebalance
your portfolio over time, youjust get more conservative.
So nevertheless, my point reallyis that you could be invested in
(08:05):
something like a 2050 fund, orit could be just sitting in a
money market.
And a money market really isjust a parking lot for your
money.
And it really just maintains adollar for dollar ratio.
So you put in a dollar, you havea dollar.
And it's always designed to justmaintain that dollar for dollar
ratio so when you do invest yougot this money in your account
(08:30):
and you just then allocate itout of that account into you
know whatever you want to buymutual funds or you know what
have you so in brokerageaccounts it works similarly but
we're talking about you know acustodial account but again
There's generally a parking lotfor your money, like I said,
usually a money market that youshift out of, or you can take a
(08:52):
break from investing, and youdon't want to be in the market.
Let's say it gets scary for you,and you're just like, no, no,
no, no, it's starting to drop.
I just want my money all up.
Take it all out of the market.
Well, you can take it out of themarket without withdrawing it,
because if you...
did withdraw money from your401k, you're going to be subject
to penalties.
And especially, like I said,there's not only the early
(09:15):
withdrawal penalty, but youwould have an additional penalty
for being under 59 and a half.
So that all aside, you can takea break from investing and move
your money from, let's say, yourequity funds, and you can move
it into the money market.
And it can stay in that moneymarket indefinitely, right?
(09:36):
You could park it there for...
six months.
You could park it there for sixyears.
So that's, again, entirely up toyou.
You could move a portion of yourmoney and leave a portion in all
sorts of ways, right?
You get the point.
So the idea, again, is that ifyour money, once you find out
who the custodian is, you getthe packet, you look at your
(09:58):
investment choices, and you loginto your account, and then you
realize it's just sitting in themoney market.
So If it's just sitting there,again, you really want to invest
it.
And if you don't know how toinvest it or what to invest in,
that's really the time to seeksome competent advice, right?
(10:21):
So you really don't probablywant to turn to your fellow
employee and ask them becausethey may not know or they are
telling you how to invest basedon their own personal strategy.
It may or may not be the bestfor you.
So you really want to work withsomebody who has your best
interests at heart, who takes alook at your whole world and can
(10:44):
take all that intoconsideration, plus getting to
know you and your fears, youraspirations, and then can guide
you into an investmentallocation that really suits
you.
Because, again, the last thingyou want to do is be lying in
bed at night and you're justsick worrying about your money
because you think that youinvested it wrongly.
So you need to work withsomebody who's going to help you
(11:06):
invest it so you can sleeppeacefully that night.
That's the whole name of thegame.
And then as time goes on, again,when you need help or you want
to talk to somebody, you go backto that point of contact and you
say, hey, let's look at myportfolio and let's rebalance if
I need to.
Or again, the market's droppedand I'm scared to death.
What the hell should I do?
So 401ks, not a bad thing.
(11:29):
Even if you didn't sign up forit, It's just a good idea to let
it ride unless you're just deadbroke, right?
And then really what you want todo is maybe lower the
contribution because they couldbe withdrawing a minimal amount,
let's say 3%.
They could be withdrawingupwards of maybe 8%, 10%,
(11:54):
usually not that much.
But the whole idea is you wantto get it to a level that you
can afford.
Now, putting in the bare bonesminimum, yes, that is something
you can do.
Is it the best idea?
Probably not.
So the reason I say that isbecause you want to make it
(12:15):
almost to the point that it'schallenging for you to ignore
that money, meaning you want topush yourself to the point that
you can do without that money.
Because the more that youcontribute early on, and again,
this is all your money.
Nobody else's money.
The IRS isn't taking a chunk outof it.
(12:36):
In fact, it's going to help youif you put your money in a
pre-tax IRA.
I mean, excuse me, a 401k.
so that it lowers your taxableincome.
Many times there is also anafter-tax, or basically like a
Roth 401k, where you're puttingmoney in that's already been
taxed, then later on down theroad you take out your
contributions, tax-free, youonly pay tax on the growth.
(12:59):
And that really just depends,again, on the type of 401k that
you have.
And so usually, like in aregular Roth, all the money you
put in, all the earnings, aslong as it's been there over
five years and you're over 591⁄2 before you start
withdrawing, everything comesout completely tax-free.
That's a great thing, right?
So again, you want to just putyour money in and let it go.
(13:20):
And ultimately, you want to fundit to the greatest degree that
you can because that's really,again, where you're going to
benefit by more money than lessmoney.
And most people, again, let'ssay in your 20s and 30s, and
it's just usually people who areslow to start investing for any
(13:44):
number of reasons.
And you want to rectify that byinvesting.
Now, I have plenty of examplesof people who have been advised
time and time again to open upan IRA, right?
And they know about them.
They know how they work for themost part.
But they never do it.
(14:06):
And then year and year goes by.
And next thing you know, again,they have never saved a dime for
retirement.
So, and likely, similarly, likeif you're a spendthrift and you
go through your money likewater, having this money
automatically taken from youagain is just going to be more
beneficial from you.
(14:26):
So, as you're working,contribute.
Let the money go, invest itwisely, and put as much money as
you can afford to put in.
So if you were fortunate enoughthat you could put the maximum
in, you would put in up to$23,500.
Now you may have some additionalmoney that's added, like
(14:48):
oftentimes your employer willgive you a matching
contribution.
It could be 1%, 3%, 5%.
It just really depends.
And If, let's say, you're onlyinvesting 1% and they match up
to 3%, then you're letting freemoney just slip through your
fingers.
So ideally, you want to pushyourself up to whatever that
(15:08):
matching percentage is.
Now, sometimes if you're a newemployee, they'll say you don't
get any matching contributionsuntil you've been here at least
a year.
And that is what it is.
So...
you can, again, push yourself toput in whatever that amount is
and kind of gear yourself forwhen that time frame comes.
(15:31):
And then if you were up at 3%and the matching is at 3%, then
you know that you're going tobenefit from that.
If you're at 1%, push yourselfto 3%, you get the point.
So it's just more money for you.
But if you're an older personand you want to still contribute
(15:52):
to your 401k as well, if you'reover 50, you have a$7,500
catch-up provision.
So not only can you put in the$2,300, but you can also put in
the additional$7,500 catch-upcontribution.
So...
the total amount of money thatyou would be able to put in, and
(16:13):
you cannot exceed this amount inthis year, 2025, that'd be
$77,500.
So that's a lot of money, right?
That is a lot of money.
But if you're fortunate enoughto make a really good salary,
that may be a possibility foryou.
Now, let's say that you're stillworking for whatever reasons you
(16:34):
want to, You know, you enjoywhat you're doing, but you're,
let's say, age 70, and you canstill contribute as long as
you're working, and you canstill put money into your 401k.
Even at the point that you haveto start mandatory
distributions, thosedistributions do not apply as
(16:56):
long as you're working, so youcan still contribute.
Again, it's just a magic of timethat's working together.
It's way on your portfolio.
That's the whole point I'mreally trying to make.
So automatic enrollments, theyare a thing.
They are allowed.
You want to take advantage ofputting money into your 401k to
the greatest degree you can.
(17:16):
Now, if let's say you did matchor max out your 401k
contributions, and even if youhaven't, you can still have an
IRA as well.
Now, You could open up atraditional Roth, maybe have
your pre-tax 401k because you'regoing to lower your taxable
(17:37):
income.
Maybe you're not able to putmoney and take a tax deduction
on your IRA because you'realready getting a tax deduction
on your 401k.
You can open up a Roth, okay?
You could do that.
And then you're contributing tothe Roth as well.
There's all different kinds ofstrategies, and it just, again,
really depends on what youpersonally would like to do and
(17:58):
how you're going to benefit.
That's when you really want totalk to somebody and get their
advice and just strategize.
And, again, you're not settingthis for the rest of your life.
Let's say you're in this 2050fund and you don't like it for
whatever reasons.
You're not stuck there until2050 just because you put your
money in.
(18:19):
So there's usually a plethora ofchoices, and you can move your
money, some of it, all of it,part of it, And you could
reallocate it into differentfunds.
Let's say you're in this 2050.
And I don't know, you want toinvest in a world fund.
Yeah, you could take, again,whatever amount you want, and
(18:39):
exchange it and go into this,you know, world fund that maybe
invest all over the world.
Who knows?
There's a lot of differentthings that you might want to
take advantage of.
Now, should you you know, moveyour money all the time, like
every time you get paid?
No, No, no, you don't want to dothat.
Could you?
Yeah.
But again, you don't really wantto.
(19:02):
So making those changes andadjustments should be done on, I
would say, no more frequentlythan every six months, generally
like a year.
Because again, you really needto see how things are going to
work itself out.
Oftentimes, you know, peoplelook at their 401k portfolios
and, you know, then they look atthe performance of the fund
(19:23):
they're in and let's say it'sdown, then they go, no, this
fund sucks, you know, and theywant to jump out.
Yes, again, you can.
But what happens if you jump outat the wrong time and the market
goes back up?
You've missed out on all thatgain, right?
Because again, it's buy low,sell high.
And when you exchange or youmove your money, then you've
essentially sold, right?
(19:44):
So then you have to buy in at adifferent price.
So if you originally bought infive years ago and that price
was, you know, much lower fiveyears ago, but the market is
down now and you're like, yikes,I need to get out.
Then again, when you buy backin, it's probably not going to
be that same price that it wasfive years ago.
(20:04):
It could be, could be, right?
We've seen unusual circumstanceswhere the market has dropped
unbelievably by a huge amount.
And it could be well below whatyou actually originally bought
in for.
Not always the case, not a usualcase, but it can happen.
Again, you really just want toset it and forget it.
(20:26):
That's really the best advice Iwould give you.
But again, your personalcircumstances may dictate how
you choose to manipulate yourown money.
But nevertheless, you want toput your money in and
continually contribute money Andnot stop your contributions
unless you have to.
So if you're going through somekind of financial circumstance
(20:49):
where you need every penny,pause your 401k, right?
Put a pause on it, and thenyou're going to take more home.
Hopefully, though, you won'tpause that forever.
And then once this financialcrisis is over, then you can go
back in and, you know,reactivate it and start your
contributions, etc., etc., Thereare circumstances when you can
(21:13):
withdraw from your 401k, andthat really depends.
So sometimes they'll let youtake out money for, let's say, a
first-time home purchase ormaybe for unexpected medical
expenses, you know, some kind offinancial hardship, withdraw.
You can check with your 401kprovider and look at the
provisions, et cetera, and getsome guidance in that respect.
(21:34):
So that's what I wouldrecommend, and just kind of
giving you some additionalinformation so that– If you are
freaking out about that, youreally now have a better
understanding of why and thatit's not a bad thing.
It's really meant to help you,not hurt you, and that you
really want to let it continueto grow over time.
(21:56):
Don't turn your back to it.
Work with somebody who can helpyou if you don't feel
comfortable making those choicesall on your own.
So that's all I have to say, andI will talk to you next time.
SPEAKER_02 (22:08):
We'll be right back.
UNKNOWN (22:38):
you
Bye.
SPEAKER_03 (00:53):
Hello and welcome to the Pink Money Show.
My name is Jerry Williams and inthis podcast we talk about all
things related to money from agay perspective.
And, you know, one of the thingsthat happened to me recently was
I got asked a question, kind ofa panic call, if you will,
because I had someone who gottheir paycheck and then all of a
(01:17):
sudden they realized that it wasshort.
So it wasn't the amount thatthey were expecting.
And when they looked a littlefurther into it, they realized
that their employer has startedwithholding for a 401k.
And which was alarming to themis that they had never signed up
for a 401k with their employer.
(01:38):
And so they were curious,anxious, mad, everything at the
fact that my employer started totake money from me And I don't
know where it's at, and I don'tknow why they did that.
And they wanted to know what arethe repercussions, what can they
do, et cetera.
(01:58):
So I explained to them thatactually their employer does
have the right and the abilityto automatically enroll them in
a 401k plan.
There is a section in the IRScode, number 414W, that allows
for automatic contributionarrangements.
(02:20):
So as of 2006, when they passedthis law, they set up the
ability for contribution ratesto be automatically withdrawn by
employers for their employees.
Now that may sound kind ofstrange, right?
Because you're like, what?
How in the world are they goingto be able to take my money from
(02:45):
me without me?
So the whole idea behind thisconcept was, of course, people
don't generally save enough forretirement or they start much
too late saving for retirement.
So it's always better to startearlier because then you have
the power of time working onyour money.
So The earlier you invest, thelonger you have to let it sit
(03:09):
and do its thing.
You know, the more money you'regoing to have in the long run,
plus, you know, thecontributions that you
continually make on an ongoingbasis.
That's how, you know, you end upwith a nest egg of a million and
whatnot, you know, if youconsistently do it.
And also saying that if you arelucky enough to have some
matching contributions from youremployer, and if you also should
(03:32):
be lucky enough to be able toput in the maximum amount that
you can into your 401k.
So all that taken intoconsideration means that the
idea was, just like SocialSecurity, they withhold money
for you, and then ultimatelywhen you retire and you start
(03:56):
withdrawing, You've contributeda certain amount of money, and
then you're able to reap thebenefits of that, and the
government starts giving youthat money back.
Similarly, with your 401k, your403b, those kind of defined
contribution plans, then it'sthe same thing where you put
money into it, and ultimatelywhen you retire, then there is a
(04:18):
nest egg for you to withdraw onand live on.
And that can generally justsupplement your Social Security
so you're not living on justSocial Security, which is
usually not enough for anybodyto really essentially live on.
And that's kind of another storyin and of itself.
But back to the whole idea here.
(04:39):
So I explained to them that theyautomatically had money taken
from them and 401K was set upfor them and that they needed to
get a hold of their employer,their employer, manager, their
HR department, or, you know,whomever is their point of
contact and get the paperwork,the 401k packet that describes
(05:02):
who the company is, you know,who is the custodian of their
money and what their investmentchoices are.
Because very, very often whenmoney is withdrawn, it will go
into a very conservative type ofan account, like maybe a money
market.
Or it could be something, ifyou're lucky, like maybe a
target date fund, meaning theportfolio is geared towards the
(05:31):
year in which you wouldessentially retire.
So let's just say, for example,if you're, I don't know, 33 and
you retire at, let's just sayage 60, for example, that's 27
years.
So 27 years from this year,2025, and we're looking at a
(05:51):
2050, 2052.
Well, the target date fund of2050 would probably the one you
would go into because it'sstructured in a way that it's
more heavily laden in stocks andusually more aggressive, um, so
that it's, again, heavilyweighted in, you know, big
(06:16):
companies, small companies,medium size, and in a
quote-unquote aggressiveportfolio that is designed to,
again, slowly adjust over timeautomatically and will become
more conservative, moreconservative as time marches on.
So it's just a simple set it andforget it in an easy way, you
(06:36):
know, to...
put your money into somethingthat, again, is going to work
for you.
So the whole idea usually is theyounger you are, the more risk
you can take, and the older youget, then the more conservative
you want to be because you don'thave the luxury of time any
longer when you're, you know,fast approaching, you know, your
retirement years.
If you're in your 50s, you don'twant to be going into a very
(06:58):
aggressive fund because if themarket happens to, you know,
crash, you're It can takeupwards of maybe 10 years to
recover.
So if you're already in your 50sand you've got that 10-year time
frame and you've just got 10more years you've got to try to
make up, it just doesn't workout for you.
So you might have to delay yourretirement, et cetera.
So you don't want to do that.
(07:19):
The whole idea, unless, again,you are just willing to roll the
dice and you're like, hey, letit go, but that's up to you.
But again, the more...
a common strategy is and whatmost advisors would probably
tell you is invest aggressivelyearly on in life, as long as you
can, again, take it, you know,you don't worry about it, you're
(07:40):
not going to look at yourportfolio every day or, you
know, and freak out if themarket drops 2050%.
You know, you're just going tolet it stay in there and
continually buying regardless ofwhat the market is doing.
And then ultimately, As timemarches on and you rebalance
your portfolio over time, youjust get more conservative.
So nevertheless, my point reallyis that you could be invested in
(08:05):
something like a 2050 fund, orit could be just sitting in a
money market.
And a money market really isjust a parking lot for your
money.
And it really just maintains adollar for dollar ratio.
So you put in a dollar, you havea dollar.
And it's always designed to justmaintain that dollar for dollar
ratio so when you do invest yougot this money in your account
(08:30):
and you just then allocate itout of that account into you
know whatever you want to buymutual funds or you know what
have you so in brokerageaccounts it works similarly but
we're talking about you know acustodial account but again
There's generally a parking lotfor your money, like I said,
usually a money market that youshift out of, or you can take a
(08:52):
break from investing, and youdon't want to be in the market.
Let's say it gets scary for you,and you're just like, no, no,
no, no, it's starting to drop.
I just want my money all up.
Take it all out of the market.
Well, you can take it out of themarket without withdrawing it,
because if you...
did withdraw money from your401k, you're going to be subject
to penalties.
And especially, like I said,there's not only the early
(09:15):
withdrawal penalty, but youwould have an additional penalty
for being under 59 and a half.
So that all aside, you can takea break from investing and move
your money from, let's say, yourequity funds, and you can move
it into the money market.
And it can stay in that moneymarket indefinitely, right?
(09:36):
You could park it there for...
six months.
You could park it there for sixyears.
So that's, again, entirely up toyou.
You could move a portion of yourmoney and leave a portion in all
sorts of ways, right?
You get the point.
So the idea, again, is that ifyour money, once you find out
who the custodian is, you getthe packet, you look at your
(09:58):
investment choices, and you loginto your account, and then you
realize it's just sitting in themoney market.
So If it's just sitting there,again, you really want to invest
it.
And if you don't know how toinvest it or what to invest in,
that's really the time to seeksome competent advice, right?
(10:21):
So you really don't probablywant to turn to your fellow
employee and ask them becausethey may not know or they are
telling you how to invest basedon their own personal strategy.
It may or may not be the bestfor you.
So you really want to work withsomebody who has your best
interests at heart, who takes alook at your whole world and can
(10:44):
take all that intoconsideration, plus getting to
know you and your fears, youraspirations, and then can guide
you into an investmentallocation that really suits
you.
Because, again, the last thingyou want to do is be lying in
bed at night and you're justsick worrying about your money
because you think that youinvested it wrongly.
So you need to work withsomebody who's going to help you
(11:06):
invest it so you can sleeppeacefully that night.
That's the whole name of thegame.
And then as time goes on, again,when you need help or you want
to talk to somebody, you go backto that point of contact and you
say, hey, let's look at myportfolio and let's rebalance if
I need to.
Or again, the market's droppedand I'm scared to death.
What the hell should I do?
So 401ks, not a bad thing.
(11:29):
Even if you didn't sign up forit, It's just a good idea to let
it ride unless you're just deadbroke, right?
And then really what you want todo is maybe lower the
contribution because they couldbe withdrawing a minimal amount,
let's say 3%.
They could be withdrawingupwards of maybe 8%, 10%,
(11:54):
usually not that much.
But the whole idea is you wantto get it to a level that you
can afford.
Now, putting in the bare bonesminimum, yes, that is something
you can do.
Is it the best idea?
Probably not.
So the reason I say that isbecause you want to make it
(12:15):
almost to the point that it'schallenging for you to ignore
that money, meaning you want topush yourself to the point that
you can do without that money.
Because the more that youcontribute early on, and again,
this is all your money.
Nobody else's money.
The IRS isn't taking a chunk outof it.
(12:36):
In fact, it's going to help youif you put your money in a
pre-tax IRA.
I mean, excuse me, a 401k.
so that it lowers your taxableincome.
Many times there is also anafter-tax, or basically like a
Roth 401k, where you're puttingmoney in that's already been
taxed, then later on down theroad you take out your
contributions, tax-free, youonly pay tax on the growth.
(12:59):
And that really just depends,again, on the type of 401k that
you have.
And so usually, like in aregular Roth, all the money you
put in, all the earnings, aslong as it's been there over
five years and you're over 591⁄2 before you start
withdrawing, everything comesout completely tax-free.
That's a great thing, right?
So again, you want to just putyour money in and let it go.
(13:20):
And ultimately, you want to fundit to the greatest degree that
you can because that's really,again, where you're going to
benefit by more money than lessmoney.
And most people, again, let'ssay in your 20s and 30s, and
it's just usually people who areslow to start investing for any
(13:44):
number of reasons.
And you want to rectify that byinvesting.
Now, I have plenty of examplesof people who have been advised
time and time again to open upan IRA, right?
And they know about them.
They know how they work for themost part.
But they never do it.
(14:06):
And then year and year goes by.
And next thing you know, again,they have never saved a dime for
retirement.
So, and likely, similarly, likeif you're a spendthrift and you
go through your money likewater, having this money
automatically taken from youagain is just going to be more
beneficial from you.
(14:26):
So, as you're working,contribute.
Let the money go, invest itwisely, and put as much money as
you can afford to put in.
So if you were fortunate enoughthat you could put the maximum
in, you would put in up to$23,500.
Now you may have some additionalmoney that's added, like
(14:48):
oftentimes your employer willgive you a matching
contribution.
It could be 1%, 3%, 5%.
It just really depends.
And If, let's say, you're onlyinvesting 1% and they match up
to 3%, then you're letting freemoney just slip through your
fingers.
So ideally, you want to pushyourself up to whatever that
(15:08):
matching percentage is.
Now, sometimes if you're a newemployee, they'll say you don't
get any matching contributionsuntil you've been here at least
a year.
And that is what it is.
So...
you can, again, push yourself toput in whatever that amount is
and kind of gear yourself forwhen that time frame comes.
(15:31):
And then if you were up at 3%and the matching is at 3%, then
you know that you're going tobenefit from that.
If you're at 1%, push yourselfto 3%, you get the point.
So it's just more money for you.
But if you're an older personand you want to still contribute
(15:52):
to your 401k as well, if you'reover 50, you have a$7,500
catch-up provision.
So not only can you put in the$2,300, but you can also put in
the additional$7,500 catch-upcontribution.
So...
the total amount of money thatyou would be able to put in, and
(16:13):
you cannot exceed this amount inthis year, 2025, that'd be
$77,500.
So that's a lot of money, right?
That is a lot of money.
But if you're fortunate enoughto make a really good salary,
that may be a possibility foryou.
Now, let's say that you're stillworking for whatever reasons you
(16:34):
want to, You know, you enjoywhat you're doing, but you're,
let's say, age 70, and you canstill contribute as long as
you're working, and you canstill put money into your 401k.
Even at the point that you haveto start mandatory
distributions, thosedistributions do not apply as
(16:56):
long as you're working, so youcan still contribute.
Again, it's just a magic of timethat's working together.
It's way on your portfolio.
That's the whole point I'mreally trying to make.
So automatic enrollments, theyare a thing.
They are allowed.
You want to take advantage ofputting money into your 401k to
the greatest degree you can.
(17:16):
Now, if let's say you did matchor max out your 401k
contributions, and even if youhaven't, you can still have an
IRA as well.
Now, You could open up atraditional Roth, maybe have
your pre-tax 401k because you'regoing to lower your taxable
(17:37):
income.
Maybe you're not able to putmoney and take a tax deduction
on your IRA because you'realready getting a tax deduction
on your 401k.
You can open up a Roth, okay?
You could do that.
And then you're contributing tothe Roth as well.
There's all different kinds ofstrategies, and it just, again,
really depends on what youpersonally would like to do and
(17:58):
how you're going to benefit.
That's when you really want totalk to somebody and get their
advice and just strategize.
And, again, you're not settingthis for the rest of your life.
Let's say you're in this 2050fund and you don't like it for
whatever reasons.
You're not stuck there until2050 just because you put your
money in.
(18:19):
So there's usually a plethora ofchoices, and you can move your
money, some of it, all of it,part of it, And you could
reallocate it into differentfunds.
Let's say you're in this 2050.
And I don't know, you want toinvest in a world fund.
Yeah, you could take, again,whatever amount you want, and
(18:39):
exchange it and go into this,you know, world fund that maybe
invest all over the world.
Who knows?
There's a lot of differentthings that you might want to
take advantage of.
Now, should you you know, moveyour money all the time, like
every time you get paid?
No, No, no, you don't want to dothat.
Could you?
Yeah.
But again, you don't really wantto.
(19:02):
So making those changes andadjustments should be done on, I
would say, no more frequentlythan every six months, generally
like a year.
Because again, you really needto see how things are going to
work itself out.
Oftentimes, you know, peoplelook at their 401k portfolios
and, you know, then they look atthe performance of the fund
(19:23):
they're in and let's say it'sdown, then they go, no, this
fund sucks, you know, and theywant to jump out.
Yes, again, you can.
But what happens if you jump outat the wrong time and the market
goes back up?
You've missed out on all thatgain, right?
Because again, it's buy low,sell high.
And when you exchange or youmove your money, then you've
essentially sold, right?
(19:44):
So then you have to buy in at adifferent price.
So if you originally bought infive years ago and that price
was, you know, much lower fiveyears ago, but the market is
down now and you're like, yikes,I need to get out.
Then again, when you buy backin, it's probably not going to
be that same price that it wasfive years ago.
(20:04):
It could be, could be, right?
We've seen unusual circumstanceswhere the market has dropped
unbelievably by a huge amount.
And it could be well below whatyou actually originally bought
in for.
Not always the case, not a usualcase, but it can happen.
Again, you really just want toset it and forget it.
(20:26):
That's really the best advice Iwould give you.
But again, your personalcircumstances may dictate how
you choose to manipulate yourown money.
But nevertheless, you want toput your money in and
continually contribute money Andnot stop your contributions
unless you have to.
So if you're going through somekind of financial circumstance
(20:49):
where you need every penny,pause your 401k, right?
Put a pause on it, and thenyou're going to take more home.
Hopefully, though, you won'tpause that forever.
And then once this financialcrisis is over, then you can go
back in and, you know,reactivate it and start your
contributions, etc., etc., Thereare circumstances when you can
(21:13):
withdraw from your 401k, andthat really depends.
So sometimes they'll let youtake out money for, let's say, a
first-time home purchase ormaybe for unexpected medical
expenses, you know, some kind offinancial hardship, withdraw.
You can check with your 401kprovider and look at the
provisions, et cetera, and getsome guidance in that respect.
(21:34):
So that's what I wouldrecommend, and just kind of
giving you some additionalinformation so that– If you are
freaking out about that, youreally now have a better
understanding of why and thatit's not a bad thing.
It's really meant to help you,not hurt you, and that you
really want to let it continueto grow over time.
(21:56):
Don't turn your back to it.
Work with somebody who can helpyou if you don't feel
comfortable making those choicesall on your own.
So that's all I have to say, andI will talk to you next time.
SPEAKER_02 (22:08):
We'll be right back.
UNKNOWN (22:38):
you
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