Should I get a 401(k) plan at 16 years old?

Question

I am working at Target, and they offer a 401(k) plan. I am only 16 and am only expecting to make about 8-900 dollars this summer, and I may continue working through the school year, but will not be making much money. My dad says I should put 5% of my profits into a 401(k), but I do not know if it is worth it, being only about $40, and not being able to use that money for another 44 years. Thank you!!
-Hannah

Answer 1

You should do it.. If you start saving today for retirement, you will be so glad that you did. If you continue to put 5% in until you reach retirement, you will have millions and millions of dollars waiting for you. You'll be a multi-millionaire. Many people worry that they won't make it to retirement. However, in the sad even that the good Lord calls you home before retirement, you can pass that wealth onto your kids if you have them or some of your love ones.

Hope that helps

http://www.financialgym.org

Answer 2

Your dad is absolutely correct. One of the best things you can do for yourself is to start a 401(k) or Roth IRA, and start saving for your retirement. Even if you only put some in the account now, it will have 40-50 years to grow. Of course, you'll need to keep putting money away, but if you get in the habit of it now, it will be easier to do so later, whether you're working at Target or some other company.

Compound interest is an amazing thing. If you know how to use a basic spreadsheet, try setting up one showing some basic contributions for 10 years earning 7 or 8%, and then letting the money ride until you reach the age of retirement. You WILL be amazed at what you see. I wish I had started something like that at your age!

Answer 3

Invest... Usually a company will offer a matching contribution (up to about 3%) So no matter what, you want to invest at least their matching contribution... That way you are making a 100% return on your investment technically speaking... A 401k is very flexible, while a traditional IRA is not so much... 401k allows you to take loans out, and the interest paid back goes to you instead of a bank... but there are limits to what you can withdraw the money for... any withdrawal until you are of age has HEAVY penalties, and will wipe out pretty much any gain you had... Most employers have a person you can talk to about your investments... typically here is the path your 401k or IRA should take (but you must actually be making a decent contribution, or you will not be able to invest in all of the funds listed below) You will need to diversify your 401k or IRA portfolio... here is the direction your want to take: Large Cap (Dividends and low growth) Small Cap (Has the ability of posting large gains) International Market (Also has the ability of posting large gains) Bond Fund (Posts larger than normal interest compounded monthly, very low growth) Stock + Bond blend (This is a moderate investment, while posting potentially large gains, it also posts dividends) Once you figure out the percentage (or dollar amount) you want to have taken out of your pay PRE-tax (tax is paid after retirement, taxed as normal income)... your financial advisor will lay down your map which should look similar to the above path... Say you put 10% of your pretax pay, and your employer gives 3%... and the total you invest is just say, $180 per pay check... They will take the $180 and automatically invest it into the above funds... You may have 30% going into growth, 10% into the bond fund, 20% in international markets, and the remaining 40% split between the rest of the funds... You should not be interested in purchasing individual stocks in your 401k, it is very risky, and just wont see the same growth over 40 years... But compounding your savings is the way to go when you are young.... they say that if you invest $10,000 in your 20s... it will make more in the long run than investing $75,000 when you are in your 50s... If you want to save and have a ton of money when you get older, you are on the right path.. and remember, you should save until it hurts... Also if you have a savings account with your local bank, ditch it... they are absolute scams for your money... you should go with an reputable online bank that pays a great % of your post tax income... Local banks may pay around .02% (Thats right... not even a percent!) while most competitive online banks pay around 1.2% or more... and the fed rates are very low right now, and these banks have histories of paying 5% or more. Good luck to you!

Answer 4

YES!!! Definitely put at least the 5% into your 401K. You will not notice the 5% missing from your paycheck. Also the money is taken out pre-tas so it is actually like you are saving more money. If you are doing it at 16, that money will continue to compound (meaning the interest that is generated from the original contribution will gain its' own interest. Save as much at as early an age as possible you will be glad you did (especially if something ever happens to Social Security).

Answer 5

You cannot get a 401k at 16 you cannot get one until 21. In the meantime since you obviously know how imortant it is to save start a savings account. When you are 21 you can put it into a IRA for your retirement!

Cudos to you for thinking like an adult!!!

Answer 6

If you're allowed to, yes put money into the plan - you'll be surprised at how much it can grow by the time you retire. Many 401K plans don't allow people to participate who are under a certain age, maybe 21, but if yours does, go for it.

Answer 7

Your dad is right. First, you should get into the habit of saving. Second, the whole key to creating a huge retirement account is starting young that the "magic" of compounding interest can kick in. You shouldn't think in terms of spending this money, or the fact that you can't right now, but think in terms of making yourself financially independent.

Answer 8

when u are 21 do it

Answer 9

You have to be 21 years old to participate in a 401k, but as soon as you are eligible yes you need to.

Answer 10

Please listen to your dad because he is on Target