Key Takeaways
- Most people, when they are starting off in the workforce, end up working at a few different jobs for the first few years.
- Many companies offer matching 401(k) programs, and you can actually roll over one 401(k) at one company to another 401(k) at another company.
- Most 401(k)s have what’s called a loan provision that allows you to take a loan out, where you act as your own bank, so you can use it for an emergency and not have to take on any bad debt.
I like little tricks that simplify things. I was trying to do something on my iPhone the other day, and my daughter says, “Why don’t you just take a picture of the screen?” Being a part of the older generation, I said, “You can do that?” Of course, most of you know how to do that by just pressing two buttons on the phone to get the picture. It’s a great trick, but I had no idea.
I want to pass along a trick I know about 401(k)s.
I know a lot of you, especially if you are new to the workforce, will probably move in to different jobs at different companies in the first five years. It’s just the natural progression of things, and it’s been going on for generations. If your company has a 401(k), take advantage of it. Many employers match the money you put in to your 401(k), and it’s typically 100% vested, meaning you own it all.
Let’s say two years down the road, you decide you want to leave the company and that you invested in a 401(k) with them. If your new employer also has a 401(k) program, you can actually roll over your 401(k) with the previous company you worked at, in to the new company’s 401(k). Most 401(k)s allow for incoming rollovers.
You may not have known that, and you might be asking why you’d want to do that. Well, here’s another thing you may not know about 401(k)s. If you get in to some kind of trouble where you need money, most 401(k)s have a loan provision. So, if you had $10,000 in your 401(k) at the first company, and you moved it to the second company where it grew to $25,000, then you move to a third company, and now you have $35,000, if you need a quick $10,000 for an emergency, most 401(k)s allow you to take out a loan.
Now, I am not one to encourage taking retirement money and loaning against it, but we all have situations in life where we need access to emergency funds. With this loan provision in a 401(k), you are the bank, you are paying the loan back to yourself, so the interest you pay on the loan goes back into your own account. It’s a great way to take care of a short-term emergency need without taking on bad debt or racking up credit card debt and paying high interest rates.
It’s a great way to get access to long-term funds for an emergency situation that you probably weren’t aware of. Some people have been doing this for really bad Sallie Mae student loans that are at 13% right now, and paying them off with a loan from their 401(k) because it gets 5%. It’s a huge benefit by doing that.
These are just a few of the tricks I know about 401(k)s, so hopefully next time, you won’t have to ask anyone to show you how to take a picture with your iPhone!
Until next time, enjoy!
Gary