I am currently holding “an in between job before I start swimming in the corporate ocean. I’ve held a lot of jobs over my college career ranging from sales representative at Best Buy and Circuit City to a banker. Now I’m back to being a waiter at a fairly large chain in the South. The one thing that I’ve noticed in my past jobs is the use of the company’s retirement benefits by nearly 99% of the employees. People contributed at least the minimum amount to their 401(k) to receive the company match.

At my current position, the company will match four percent of the contributor’s contribution. To be eligible to participate in the plan, you must be a full-time employee (working at least 1000 hours per year. Seems like a ton when you look at it right?). After speaking with nearly every single employee, guess how many people are contributing to the plan? Most people will guess around 20-30 percent. Well, it’s actually 0%! Goose egg! Most of the serving staff has been employed with the company for more than three years; which they have elected not to contribute. Some employees have stayed at the same location since its opening and still do not contribute (eight years this summer).

Then I thought that this is only an issue with the serving staff. I later asked one of the managers and she told me she didn’t even contribute! The only person that has company stock is the general manager because all managing partners are given stock options. I decided to call the HR department and ask what the average match the company contributes to a full-time server. The representative gave me an example of how much I could be earning if I contributed. He said I would receive about $60 dollars a month. I’m only working 25 hours a week and receive much less tips versus the veteran waiting staff. So I took my number and doubled it then increased it another fifteen percent. The average full-time server has declined ~$1700 a year! The one employee that’s been working there for seven years has essentially lost $12,000 dollars. And that is only company matched dollars!

Let’s now evaluate how much real money the employee has neglected to receive.

The stock traded for $9.5 seven years ago and is currently trading for $31. Using this calculator the annual growth is about 18.4%. The monthly contributions would be $276 ($138 from the employee and $138 from the company). Now using this calculator, you can put in all the figures and come up with about ~$47,000.00. The ShareBuilding what if I invested calculator says the total net worth would be $51,400 (I think it considers the two stock splits). The total dollar amount invested would be about $11,600; which means they lost about $40,000 in seven years!

*eFIPO’s Rule* Do not ever pass up the opportunity for free money! If your company provides a match on your 401(k) contributions, take it immediately!

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I received this really great question about 401(k)’s and Roth IRA’s: “So my mom just surprised me and said that I have a very small chunk of money in a ROTH IRA account with Fidelity that she opened for me over 5 years ago. She said it’s less than $2500 (which I think I get fee taken out because of it). So I would like to transfer the money from my 401(k) to this account. I no longer work for the company and they told me I should roll it over. So here are my questions.

1. Can I roll over my entire or partial amt of my 401K into this Roth IRA?

2. Will my 401K penalize me a fee for this rollover other than the tax I will have to pay for going into a Roth fund?

3. I understand the rules that since my Roth IRA account is over 5 years old and I can take what I have in there out with no penalty and tax free. So with this in mind, does this apply also if I were to put in my new rolled over money or do I have to wait to withdraw another 5 year time frame on this new deposit of money?”

This is a tough question, and it will force me to put on my thinking cap. About three months ago I went through the same scenario. I rolled my entire 401(k) balance into two different Roth IRAs with no problem. The one difference that I see here is that I actually left the company I worked for and it sounds like you are staying. Most of the time companies do not let you take your 401(k) prior to leaving the business unless you are in a huge financial problem. I do not recommend taking any money out of your 401(k) because of the taxes and penalties. Check with your Human Resource department and ask them.

Secondly, if you were to leave the company and transfer your 401(k) balance to a Roth there is something you must do first. You have to open up a Traditional IRA before you make the roll-over. Your 401(k) balance is pre-tax money just like a Traditional so you have to open that first. There shouldn’t be any fees tied with the transfer, but again check with your HR department. After you transfer your funds you can later move it into a Roth IRA. At this point you will have to pay regular taxes on the amount of money you are transferring over. Eventually (In the year 2010), they will be allowing straight roll-overs from your 401(k) to a Roth. So if you have a large 401(k) balance you might want to do it in increments so that you won’t get pushed up to a higher tax bracket.

Your last question is partially true. You can take out the contributions you made to your Roth IRA after five years (again HIGHLY do not recommend this), but the interest that has accrued in the Roth will be taxed and penalized. If you do not like where your Roth IRA is housed then transfer it to another brokerage or mutual fund company.

A rule of thumb that I think young investors should follow is - If you have less than $25,000.00, invest in a good mutual fund. If you have over $25,000.00 you can consider investing in single stocks and ETFs. Remember that diversification is still key, and always do your homework before you invest in single stocks. Unless you are Warren Buffet consider staying in a mutual fund.

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The pension reform bill that was recently signed in by George W. Bush has changed the future of retirement planning. Businesses no longer have the heavy burden of paying for its former employees to get rich while their profits suffer. This new plan encourages economic growth and will make us twenty and thirty year olds have a successful economy again. This plan also introduced a new forced savings plan for working individuals with a company sponsored 401(k) program. In the past decades people would depend on the government (social security), and business (pension plans) to fund their retirement nest egg. Finally, it is up to the individual to achieve financial independence, but business will still play a key role in the future.

If you read the article Big changes for your 401(k), retirement it describes the ways 401(k) plans will be offered when a new employee gets hired by a company. Starting in 2008, companies can automatically enroll new employees into their company sponsored retirement plan. The rules state that they can enroll an employee in a conservative diversification of funds (probably bonds, and other fixed income securities). Even though I think this is a win-win situation, people still need to be proactive in their retirement. Companies will also offer advice to maximize your 401(k) growth potential. Remember that their advice is still somewhat biased to the company you work for. So do your homework and read some books like 401(k) for Dummies or A Commonsense Guide to Your 401(k).

I have always said that a 401(k) program should be one of the biggest parts of your retirement savings (if you work for a company that offers one), but remember to always do some research in the funds that are inside the plan. Everyone’s plan is unique to their lifestyles (risk tolerance, age, income, how much you have already saved, ect.), but the younger generation should typically invest in 60% high risk and 40% high quality growth. Here are some other great articles to help you understand your 401(k) 7 hot 401(k) trends and FAQ about 401(k)s.

Recommended Books for This Topic

401(k) for Dummies

A Commonsense Guide to Your 401(k)

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I know that we have talked about this topic before, but when you see the statistics (current 401(k) stats) it makes me want to talk about it some more. When an employer offers you a 401(k) that matches your contribution you need to take the offer. A lot of people think that if you’re in debt you should stop contributing; which in my book is a lie unless your interest rate is over 30%.

Example of why you should contribute:

My former employer offered a 100% match on 4% of my income in their common stock if I contributed 6% of my pay. *Let’s just make the numbers easy by saying I make $1000.0 every two weeks* When my employer takes out 6% of my pay (before taxes) which is $60.0 they will match $40.0 in their common stock. Instead of saving $60.0, I earned a $100.0. That is an immediate ~67% return on your money! Can you believe people pass up this offer?

If your employer only offers the match with their company stock, I recommend allocating your contribution to other mutual funds inside of your 401(k) for diversification purposes. Diversification just means not putting all your eggs in one basket. The reason why I don’t suggest putting all your money in your company’s stock can be explained by looking at Enron, Delta, WorldCom, and Tyco.

Here is a great calculator that displays how easy it is to get rich having a 401(k) as a retirement savings vehicle. Do not be part of the 30% of American workers not contributing to their employer matching 401(k) plans. So be rich the easy way. Contribute today!

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Continuation of Social inSecurity�

I know many of you might not be looking at the day you retire, but maybe by planning now you could be very rich later on. Most people when they are young (high school ’til graduation year in college) have most of their things purchased and paid for by their parents such as: car, insurance, cell phone, medical, rent, clothing, and probably some other things. This is the perfect time in life to begin saving the most you can. There are three saving methods that people age 18-25 should consider. They are easy, flexible, and will benefit you in the long run.

First being an IRA (Individual Retirement Accounts), specifically the Roth IRA. This retirement account is aimed directly at younger people trying to save money while they are working. *Go to this website for the specifics* The most important benefit about the Roth IRA is that the money that is put into the account will grow TAX-FREE for life by using after tax money. This is the only true savings vehicle that you will never have to pay taxes on EVER as long as you follow the guidelines properly.

Here is a real example on what can happen if you put $150.00 a month into an Roth IRA at age 18 at 10% compounded yearly. At 50 years old you will have $421,250., and at the tender age of 59� you will have 1,117,325. Why such a huge jump in nine years? The incredible miracle of compound interest. It is what makes starting to save early such a wonderful thing. This website shows you how powerful a retirement account can be. Even if you end up having a hundred million dollars in interest you will NEVER pay any kind of taxes. INGDirect, Sharebuilder, Scottrade, and Fedelity are great companies that will offer you some great deals on IRA’s. Check them out and start as early as you can.

Saving for a home of your own should be a priority in most people’s lives. I don’t know many people that want to live in their parent’s house or an apartment till the day they die. Most people make the mistake of saving much too late for their homes and have to take out a bigger mortgage then originally planned. Saving early in a high yield savings account through INGDirect can really help you make the transition from an apartment to a house much easier. Usually, you want to have either 10-20% of the purchase amount in cash when buying a house. Realistically, 10% is a great down payment, so aim for 10%. For example, if your first house costs $130,000 you will need $13,000 to purchase it unless you have wonderful credit. Remember your first house doesn’t have to be your dream house, so DO NOT buy a house that you know you cannot afford, even if the mortgage company says you can. Houses make some of the best long-term investments possible. Read “ The Automatic Millionaire Homeowner” if you really want to start jumping in the real estate market.

The final savings vehicle usually will only be offered if you work for a medium or large company, but this savings program alone will make you want to work for corporate America. It is called the 401(k) plan (or 403(b) if you are working for non-profit). If you’re company offers a matching contribution plan, you CANNOT pass up this golden opportunity to make a ton of money. When you purchase in to the 401(k) Plan, most companies will match a certain amount, usually 4-6%, of your eligible contribution. For example if you were to make $2000 a month and you put 5% of your pay into the 401(k) plan (a hundred dollars a month) your company would usually match that contribution of $100. That is a direct 100% return on your money. You can’t get much better than that. So if you work for a company that offers a matching contribution (do not enroll unless they offer a matching program - I will talk more about this in a later discussion) enroll in it today!

These savings vehicles will make you so completely rich that you will not have to worry about Social Security at all. Remember if you want to be rich follow my advice, but if you want to work ’til you’re eighty and live paycheck to paycheck be my guest. Just don’t complain when all your friends are sitting at the beach while you are still working because they read this post and started saving.

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