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A Beginner's Guide to 401(k)s

A 401(k) is a special retirement savings plan which is sponsored by and contributed to from an employer. It gives employees a tax break on money that goes towards retirement. Employees sign up for a certain amount of their paycheck to go directly into a special account, and many employers match the amount that employees put in. A 401(k) is a great way to prepare for your future and set aside money for down the road.

WHY SHOULD I CARE ABOUT A 401(K)?

In some cases, it's free money.

As part of their benefits package, employers often "match" your 401(k) contributions. For example, if a company offers a 5% dollar-for-dollar match on your 401(k), they will contribute 5% of your input into your 401(k).

THE MONEY ISN'T TAXED

In most cases, contributions to your 401(k) are removed from your paycheck before you are taxed by the IRS, so you don't have to worry about those savings being taxed. The same applies for a Roth IRA account.

For example: If you want to save $1,000 per month without a 401(k), you need to earn $1,200, because the IRS will take $200. With a 401(k), you'll just need to save $1,000, because that money is protected.

MORE CONTRIBUTIONS EQUALS LESS INCOME TAXES

Every dollar that you put into your 401(k) lowers your taxable income for that year.

For example: If you make $70,000 a year, and don't have a 401(k), you will be taxed on that $70,000. If you do have a 401(k), and put $20,000 into your 401(k), you're only taxed on $50,000.

KEEP AN EYE OUT DURING YOUR JOB SEARCH

After graduating from a bootcamp, your next step is to find employment. While you're discussing benefits during your interview process, ask about whether or not the company contributes to your 401k.

If you end up in a job that does not contribute to a 401k, look into setting up a Roth IRA.