You have just attended the HR Orientation at your new job, and you learned that your employer offers a defined contribution retirement savings plan: a 401k. Your employer will match 100% of your contributions to the plan up to a maximum of 5% of your salary.
You are offered two options:
a traditional 401k, which allows you to contribute pre-tax money and defer paying taxes until you begin taking withdrawals in retirement.
a Roth 401k, which allows you to contribute money that has already been taxed and take tax-free withdrawals in retirement.
You are also offered the option of choosing to increase your initial contribution amount by 1% annually, to a maximum of 15% of your salary.
After completing the chapter readings and viewing the “Saving for Tomorrow, Tomorrow” video linked in the Module resources, respond to the following questions:
Will you choose the traditional 401k or the Roth 401k? What factors did you consider in making your decision?
What percentage of your salary will you contribute? Will you choose the automatic 1% annual increases to your contribution? Provide specific rationale for your decisions.