By coinnews 
00:00 Speaker A
And great to have you here in studio with us.
00:02 Speaker B
Thank you so much for having me.
00:04 Speaker A
So what are the different types of accounts that an employer may offer and which one is best for new graduates?
00:08 Speaker B
So workplace plans, let’s call them that, right? Defined contribution plans is what most employers offer. Mean that you contribute something that you define, so that’s your contribution. Most corporate employers will offer a 401k plan. Those come in two flavors, regular 401k and roth 401k. Now the big difference between these two is that a regular 401k plan you contribute after you pay taxes. So, uh, excuse me, you contribute before you pay taxes. So the money that you’re contributing to a regular 401k is not money you pay income tax on. So it sounds like a great deal, right? But if you’re a new grad, you are probably going to be at the lowest income level you’ll ever have in your life and their lowest tax rate that you’ll ever have in your life. So if you’re starting out at 40 50,000 bucks, you’re probably not going to pay much in taxes anyway. So for a lot of people who are starting out doing a roth 401k makes a lot more sense if your employer offers, that way you pay taxes on what you contribute. But then it grows tax free and when you retire, you take it out tax free when you’re much more likely to be in a higher income tax bracket. So a roth, most employers offer those now and those are a great choice if you’ve got that if you’re young.
00:59 Speaker A
So what is an employer match and how do you know that you’re maximizing one?
01:03 Speaker B
So employers in 401k plans and in some other plans, there’s a whole alphabet soup. There’s 403Bs, which are government and education not for profits offer those, but they basically all work the same way. Most employers will match what you put in, usually at a at a 50% rate. That’s a very common rate. So if you put in let’s say 5%, your employer will match half of that or 2 and a half percent. Many employers stop the match at 6%. Others will go all the way to 10%. So you’ve got to read the rules, but typically you get a match on at least the first 6% that you contribute. So the way to think about the match is free money. You want the free money. You want to get all the free money. And if you’re worried about investing now when the markets seem a little crazy, just remember that when your company matches what you put in, you’re instantly getting a 50% return. That is like the best return you will ever get on your investments right there.
01:46 Speaker A
Yeah. Well.
01:47 Speaker B
Yeah.
02:11 Speaker A
So there’s one very important word to know with any type of company dispersal that’s taking place and that’s the vesting cycle, the vesting period. What do you need to know about vesting in a retirement plan?
02:21 Speaker B
So most companies do something called vesting, some don’t, but most do. And that means that they’ll start making contributions to your to your contributions, so they’ll be adding, they’ll be matching, but they won’t necessarily give it to you if you don’t stay there for a certain period of time and that’s the vest. So some companies it’s six months, some companies it’s three years, some companies it’s five years. That’s another place you want to pay attention to the details because if you leave your company’s employment, typically voluntarily, uh, you don’t typically keep that match while you’re still in that vesting period. So, if you’re thinking about changing jobs, again, something new grads do a lot, you want to look at that vesting schedule because if you’re only a month or two away from hitting that number, you might want to time your departure to match with that vesting date so you get that free money.