When to start using 401k
🕵 Beginners guide to how a 401k works.
[Music]
hey Dustin Tibbets here financial
advisor with jazz wealth managers and
I'm on vacation this week sort of Monday
through Wednesday this week and I
thought what a good time to actually
help my beginners I mean the real
beginners out there right I get a lot of
phone calls a lot of emails from people
that really have very basic questions
that to ask and as I look around YouTube
yeah we're all focused on the other
stuff but never the SuperDuper basic you
know why because there's no money in
that people that make videos on YouTube
generally want to make money off the ad
revenue nothing wrong with that by the
way we make a few dollars here no
problem
but they're not very hot they're not
highly viewed videos so people want to
make them but I thought well let me help
the beginners and maybe that maybe
they'll keep us in mind maybe it's
marketing in a way but other than that
maybe it helps people get started and if
they get started with the right
information it might mean less mistakes
which means you can make money faster so
let's dive in here today we're talking
about the 401k how it works what's going
on in there unfortunately if you just
started a job and you've got a 401k
offered to you you don't get a lot of
help they don't they don't really help
you they give you a bunch of paperwork
maybe a fancy log in to your own portal
and you've got to decide what to do so
let's get started with the first thing
you're gonna look at the first thing is
you only want to contribute and
participate if you find this
three-letter word not buy me five letter
words three letter so you only want to
participate if there is a match and the
match just simply means you put in a few
dollars they put in a few dollars it's
free money right so you can't turn that
down indent generally this is how they
word it they will say if you participate
in the 401k we will match three percent
of your contributions there may be a
limit on that by the way and what that
means is they say alright if you put in
well let's say you make a hundred
thousand dollars a year they are saying
if you put in three percent of your
salary which is three thousand
they'll put in $3,000 really they
actually will right so that's what
they're saying they're saying will match
up to 3% of your salary so long as you
put in 3% of your salary it's a
one-for-one sort of thing now sometimes
what they'll do is they'll say we'll
match 3% on the first three percent of
your salary that you put in and then
we'll match 50% of the original
contribution the I'm sorry this is not
my wording I would change the wording if
it was me what they're telling you is
we'll put in three percent for the first
three percent you put in then we're
going to put in half the amount right
1.5 percent why we can't just say that
but they say we're gonna put in half the
amount for anything remainder and there
may be a limit on that as well they may
say up to six percent or something like
that bottom line is you're looking for
the match right and I hope you find that
it's something like we'll put in six
percent of your salary it'll say
something like six percent up to six
percent of your salary meaning you can't
put in a hundred percent of your salary
and they match six percent like it
doesn't work like that so you put in six
percent which in our previous example be
six thousand by the end of the year
after making those contributions you
would have also made six thousand
dollars just in free money that they
just give you that's a hundred percent
return simply for participating if
there's no match right if the 401k is
offered to you and they say we don't
have any kind of match nothing at all
now you want to go look at an IRA a Roth
IRA or one of those whatever you're
looking at there okay so that's the
first part is the match it can be a
little complicated just read it a couple
times it messes with me still at times
as well but just know that it's there
for you and you want to participate if
you have a match all right second thing
in your 401k you may see a few things
there's a there's another video is we
all won't get off topic here but you
might see that you have a 401k a lot of
times they just leave it like that it'll
just say 401k and they don't either say
Roth option which is very unfortunate
that they name it that right or it might
they Roth 401k which is what it should
say so many people think that the Roth
option is actually a Roth IRA not the
case what they're telling you is a Roth
401k and without getting all the words
confused all they're really saying is
this is pre-tax and this is post tax not
every 401k plan offers it but that's all
they're saying
very simply they're saying do you want
to put money in and put it in before you
pay taxes on your paycheck or do you
want to pay taxes on your paycheck and
then have the money go in if you have
this option you more than likely want to
start there here's the catch remember
the example a second ago where we said
if you put in six percent they match six
percent well you can choose which one
you want it to go in if you decide over
here I want to put in six percent post
tax I never want to pay tax again man
this is a headache I don't know what
taxes are going to be in the future so I
want it to go into the post tax or Roth
401k option well the six percent that
they match still has to go over here by
law and now and and there's no way
around that
right so the match goes into the pre-tax
always right so you're always gonna have
a good mix anyways so you put your money
over there they'll put their money over
here
and yet that's it so it's just like
having a Roth IRA however it is not a
Roth IRA at all all right next thing
where's the money go so you put money in
how do you invest it well you're gonna
be given a menu and on that menu will
maybe be twenty thirty different mutual
funds that you can choose from now this
depends on how old you are how long
until retirement you have to go it's
also going to depend on do you have
other investments if you're already
investing and this 401k is in addition
to it you want to keep that in mind you
may want to be more aggressive
but in this menu you're gonna see some
things like this twenty thirty twenty
let's just go forty five and twenty
fifty five you're just gonna see a bunch
of 20s and then the number well this is
the year it's called a target date
retirement fund and these are the
easiest things to invest
they really hope you invest in these you
basically go how what year is closest to
when I'm gonna retire let's say it's
this one then that's the fun you would
pick and you would invest in that one
right those will be some of the options
you're also going to see things that say
like blue chip all right those will be
more aggressive a lot of times those are
more aggressive they're the way they're
structured you're gonna see S&P 500
index right is their index funds you're
gonna see in there as well you might see
small cap I'm just trying to throw out
some of the words that you might see you
might see value could be anything you
might see growth these are key words
right they'll be followed by like the
Blackrock super duper Value Fund the
fidelity super duper small cap index
fund something like that right these are
just the main code words you're going to
be looking for bottom line is if you
have no idea what all this stuff means
look at these find the date that's
closest to your retirement that's more
than fine for now
as you get a little bit more savvy and
you want to tweak a little bit then
you're gonna go look at these funds here
S&P 500 by default a lot of people
choose that because it's an index fund
small caps gonna be more aggressive
value doesn't necessarily mean
conservative but it's definitely not
aggressive so you might want to there
depends on what type of Value Fund it is
blue chip growth funds right they're
gonna be more aggressive and anything
that says growth is going to be more
aggressive you'll see it in the return
the performance there now if you ever
see something where there's a mix of
words small cap value S&P 500 growth
maybe not so much that one you might see
blue chip growth all they're really
trying to do is identify that these
things are really aggressive in there
you can also look at the long term
returns don't look at what it did last
year don't look at what it's done this
year look at what I did over the last
ten years last five years even at
whatever your choices are you want to
see the long-term growth of the fund
doesn't really matter like this years
off to a great start so you could be
mislead into picking something that's
just having a good year right so look at
the longest term performance you can and
that's really it right
you put money into the 401k if there's a
match and you just want to know what the
match is how much do you need to put in
if the match is 6% you got to put in 6%
that's like saying I'm giving away $100
to anybody that gives me $100 and then
I'll put both of the hundred dollars in
an account that's like saying I'll I'll
give you a 50 you only have to give me
50 right now I don't do that take the 6%
that was a really bad analogy but I
tried so you put in up to the match then
when it comes time to pick the
investments if you're sorry we put the
money into the match and then you put it
hopefully into the Roth option that's
why I was trying to say and that's all
post tax then when it comes time to
choose the investments you're going to
look for those code words there right
look at the returns and if you don't
want to do the homework just simply pick
a target date fund they're available in
every 401k now by the way we help all of
our customers with their 401k fine-tune
it make sure it's invested correctly not
only that makes sure it's invested
correctly compared to their accounts
that we have with us that's all I have
for you I thought I'd just go over the
very very basics of a 401k I hope I
didn't confuse you I feel like I might
have in there a little bit don't bash me
too hard if I did I'll try harder next
time enjoy the rest of your day and
hopefully we'll talk to you soon why
should you choose jazz wealth as your
retirement or long term investing
service our portfolios are managed by us
not some faceless mutual fund manager
our private classes will teach you
everything about investing and getting
your dough straight best of all our
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interests comes before ours
