Hi my loves! It’s me Nneka or @Nnekaxoxo as I’m know on the internet. I’m the creator of High Black Girl a community for women who want to take control of their finances & look cute while doing it!

In today’s post we’re going to be breaking down exactly what a 401(k) is and why you should have one. Before we begin, do you have any financial or beauty questions you’ve been dying to ask? Leave me a comment below this post or DM me on IG @HighBlackGirl.

So, what does 401(k) stand for? 

The name 401(k) comes directly from the IRS. Essentially, the name of the law that allows companies to provide retirement accounts for their employees.

A RETIREMENT ACCOUNT?

Yes girl! A 401(k) is a retirement account provided by your employer. Believe me, when I first learned this I thought,

“pshhh, I’m too young and too cute to be worrying about retirement. I’m going to end up having a rich husband so why bother?”

But I was wrong. You should be bothered sis. We all should! The younger you start your 401(k) the better your chances are of amassing significant wealth and breaking generational curses.

This is because a 401(k) is a tax-free investment account. Meaning that you are able to invest money directly from your paycheck WITHOUT paying taxes on your contribution. Since this money is going directly into the stock market, government bonds, and corporate bonds your money is working for you to make more money. In the short term, it may not seem like much – but in the long term this will make you rich.

How Is A 401(k) Going to Make Me Wealthy? 

I am oh so happy you asked! The best part of a 401(k) is F R E E MONEY. Companies typically use 401(k)s as a way to be more competitive with other companies. Let’s break it down below:

  1. Company A is offering you your first job out of college. Please see their employment package:
    • 45,000 Base Salary
    • 10,000 Bonus Paid Quarterly (meaning $2,500 paid out every 3 months)
    • 50% 401(k)match on 10% of your salary with a 4 year vesting period
  2. Company B is competing with Company A for your time! Please see their employment package:
    • 43,000 Base Salary
    • 10,000 Bonus Paid Quarterly (meaning $2,500 paid out every 3 months)
    • 100% 401(k) match on 8% of your salary – 100% vested

Now while both companies are offering you similar cash package Company B’s 401(k) offer is significantly better than Company A. This is because of the percentage match.

Company A is offering 50% match on 10% of your salary. This equals $2,250 of free money invested on your behalf if you contribute 10%  (or $4,500) of your salary to your 401(k). If you contribute less than 10% you are leaving some of the $2,250 on the table every year.

Company B is offering you 100% match on 8% of your salary. This equals $3,600 of free money invested on your behalf if you contribute 8% (or $3,600) of your salary. If you contribute less than 8% you are leaving some of the $3,600 on the table every year.

In terms of percentage match Company B is more competitive than Company A.

Another factor to consider is the vesting period. A vesting period is the terms in which you are able to collect your 401(k) money and go. Let’s compare the vesting periods for both of the companies.

Company A is offering a 4 year vesting period. This means that after your 1st year, you’re able to leave the company with 25% of that $2,250. Your second year? You’re able to walk away with 50% of now $4,500. Your third year? 75% of now $6,750. And finally in your fourth year you are now 100% vested on that now $9,000 and able to leave the company with all of your free 401(k) money in your investment account.

Company B offering you 100% vested up front. That means in your first year that $3,600 is YOURS. No cap. You are free to leave the company at any time and take all of your free money with you.

…and in 4 years, Company B’s offer is worth $14,400 in comparison to Company A’s $9,000. Oh, and did you forget the companies are matching YOUR contribution ladies! So in 4 years with Company B you’d have $28,800 in your 401(k) investment account! 

And this is just the cash. This does not included any dividends, returns on the stock market, or compound interest. Compound interest is how investing makes you wealthy. But we’ll get into that in later!

Make sure you sign up via email so you don’t miss my next post. 

It’s A Wrap 

Company B is the obvious choice ladies. The autonomy to leave the company whenever you want and the 100% company match simply cannot be beat. Sorry Company A that extra $2,000 cash isn’t going to fool us! Plus if you want to be a real baddie you could also negotiate with Company B to match company A’s $45,000 cash offer.

It never hurts to ask!

I hope this answers your question about 401(k)s. I also broke the entire thing down in a video here on my Youtube channel if you’re more of a visual person.

Still have a lingering question? Drop me a comment down below or slide into my DMs @HighBlackGirl.

 

Posted by:High Black Girl

3 replies on “What’s A 401(K)?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s