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🕵 Beginners guide to how a 401k works.



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[Music]

hey Dustin Tibbets here financial

advisor with jazz wealth managers and

I'm on vacation this week sort of Monday

through Wednesday this week and I

thought what a good time to actually

help my beginners I mean the real

beginners out there right I get a lot of

phone calls a lot of emails from people

that really have very basic questions

that to ask and as I look around YouTube

yeah we're all focused on the other

stuff but never the SuperDuper basic you

know why because there's no money in

that people that make videos on YouTube

generally want to make money off the ad

revenue nothing wrong with that by the

way we make a few dollars here no

problem

but they're not very hot they're not

highly viewed videos so people want to

make them but I thought well let me help

the beginners and maybe that maybe

they'll keep us in mind maybe it's

marketing in a way but other than that

maybe it helps people get started and if

they get started with the right

information it might mean less mistakes

which means you can make money faster so

let's dive in here today we're talking

about the 401k how it works what's going

on in there unfortunately if you just

started a job and you've got a 401k

offered to you you don't get a lot of

help they don't they don't really help

you they give you a bunch of paperwork

maybe a fancy log in to your own portal

and you've got to decide what to do so

let's get started with the first thing

you're gonna look at the first thing is

you only want to contribute and

participate if you find this

three-letter word not buy me five letter

words three letter so you only want to

participate if there is a match and the

match just simply means you put in a few

dollars they put in a few dollars it's

free money right so you can't turn that

down indent generally this is how they

word it they will say if you participate

in the 401k we will match three percent

of your contributions there may be a

limit on that by the way and what that

means is they say alright if you put in

well let's say you make a hundred

thousand dollars a year they are saying

if you put in three percent of your

salary which is three thousand

they'll put in $3,000 really they

actually will right so that's what

they're saying they're saying will match

up to 3% of your salary so long as you

put in 3% of your salary it's a

one-for-one sort of thing now sometimes

what they'll do is they'll say we'll

match 3% on the first three percent of

your salary that you put in and then

we'll match 50% of the original

contribution the I'm sorry this is not

my wording I would change the wording if

it was me what they're telling you is

we'll put in three percent for the first

three percent you put in then we're

going to put in half the amount right

1.5 percent why we can't just say that

but they say we're gonna put in half the

amount for anything remainder and there

may be a limit on that as well they may

say up to six percent or something like

that bottom line is you're looking for

the match right and I hope you find that

it's something like we'll put in six

percent of your salary it'll say

something like six percent up to six

percent of your salary meaning you can't

put in a hundred percent of your salary

and they match six percent like it

doesn't work like that so you put in six

percent which in our previous example be

six thousand by the end of the year

after making those contributions you

would have also made six thousand

dollars just in free money that they

just give you that's a hundred percent

return simply for participating if

there's no match right if the 401k is

offered to you and they say we don't

have any kind of match nothing at all

now you want to go look at an IRA a Roth

IRA or one of those whatever you're

looking at there okay so that's the

first part is the match it can be a

little complicated just read it a couple

times it messes with me still at times

as well but just know that it's there

for you and you want to participate if

you have a match all right second thing

in your 401k you may see a few things

there's a there's another video is we

all won't get off topic here but you

might see that you have a 401k a lot of

times they just leave it like that it'll

just say 401k and they don't either say

Roth option which is very unfortunate

that they name it that right or it might

they Roth 401k which is what it should

say so many people think that the Roth

option is actually a Roth IRA not the

case what they're telling you is a Roth

401k and without getting all the words

confused all they're really saying is

this is pre-tax and this is post tax not

every 401k plan offers it but that's all

they're saying

very simply they're saying do you want

to put money in and put it in before you

pay taxes on your paycheck or do you

want to pay taxes on your paycheck and

then have the money go in if you have

this option you more than likely want to

start there here's the catch remember

the example a second ago where we said

if you put in six percent they match six

percent well you can choose which one

you want it to go in if you decide over

here I want to put in six percent post

tax I never want to pay tax again man

this is a headache I don't know what

taxes are going to be in the future so I

want it to go into the post tax or Roth

401k option well the six percent that

they match still has to go over here by

law and now and and there's no way

around that

right so the match goes into the pre-tax

always right so you're always gonna have

a good mix anyways so you put your money

over there they'll put their money over

here

and yet that's it so it's just like

having a Roth IRA however it is not a

Roth IRA at all all right next thing

where's the money go so you put money in

how do you invest it well you're gonna

be given a menu and on that menu will

maybe be twenty thirty different mutual

funds that you can choose from now this

depends on how old you are how long

until retirement you have to go it's

also going to depend on do you have

other investments if you're already

investing and this 401k is in addition

to it you want to keep that in mind you

may want to be more aggressive

but in this menu you're gonna see some

things like this twenty thirty twenty

let's just go forty five and twenty

fifty five you're just gonna see a bunch

of 20s and then the number well this is

the year it's called a target date

retirement fund and these are the

easiest things to invest

they really hope you invest in these you

basically go how what year is closest to

when I'm gonna retire let's say it's

this one then that's the fun you would

pick and you would invest in that one

right those will be some of the options

you're also going to see things that say

like blue chip all right those will be

more aggressive a lot of times those are

more aggressive they're the way they're

structured you're gonna see S&P 500

index right is their index funds you're

gonna see in there as well you might see

small cap I'm just trying to throw out

some of the words that you might see you

might see value could be anything you

might see growth these are key words

right they'll be followed by like the

Blackrock super duper Value Fund the

fidelity super duper small cap index

fund something like that right these are

just the main code words you're going to

be looking for bottom line is if you

have no idea what all this stuff means

look at these find the date that's

closest to your retirement that's more

than fine for now

as you get a little bit more savvy and

you want to tweak a little bit then

you're gonna go look at these funds here

S&P 500 by default a lot of people

choose that because it's an index fund

small caps gonna be more aggressive

value doesn't necessarily mean

conservative but it's definitely not

aggressive so you might want to there

depends on what type of Value Fund it is

blue chip growth funds right they're

gonna be more aggressive and anything

that says growth is going to be more

aggressive you'll see it in the return

the performance there now if you ever

see something where there's a mix of

words small cap value S&P 500 growth

maybe not so much that one you might see

blue chip growth all they're really

trying to do is identify that these

things are really aggressive in there

you can also look at the long term

returns don't look at what it did last

year don't look at what it's done this

year look at what I did over the last

ten years last five years even at

whatever your choices are you want to

see the long-term growth of the fund

doesn't really matter like this years

off to a great start so you could be

mislead into picking something that's

just having a good year right so look at

the longest term performance you can and

that's really it right

you put money into the 401k if there's a

match and you just want to know what the

match is how much do you need to put in

if the match is 6% you got to put in 6%

that's like saying I'm giving away $100

to anybody that gives me $100 and then

I'll put both of the hundred dollars in

an account that's like saying I'll I'll

give you a 50 you only have to give me

50 right now I don't do that take the 6%

that was a really bad analogy but I

tried so you put in up to the match then

when it comes time to pick the

investments if you're sorry we put the

money into the match and then you put it

hopefully into the Roth option that's

why I was trying to say and that's all

post tax then when it comes time to

choose the investments you're going to

look for those code words there right

look at the returns and if you don't

want to do the homework just simply pick

a target date fund they're available in

every 401k now by the way we help all of

our customers with their 401k fine-tune

it make sure it's invested correctly not

only that makes sure it's invested

correctly compared to their accounts

that we have with us that's all I have

for you I thought I'd just go over the

very very basics of a 401k I hope I

didn't confuse you I feel like I might

have in there a little bit don't bash me

too hard if I did I'll try harder next

time enjoy the rest of your day and

hopefully we'll talk to you soon why

should you choose jazz wealth as your

retirement or long term investing

service our portfolios are managed by us

not some faceless mutual fund manager

our private classes will teach you

everything about investing and getting

your dough straight best of all our

fiduciary standard means your best

interests comes before ours