401(k) Glow-Up: Your Future Self will thank you!

6 minute read

Hey Girlies! Hope you had an amazing week! We’re kicking off a new series called “So I Just Got My First Paycheck” where we’ll dive into budgeting and investing. This week, we’re putting on our big girl pants and tackling 401(k)s—a hot topic many of you have been asking about!

I know retirement accounts can feel overwhelming, but don’t worry—I’m here to break it down in a fun, easy-to-digest way so you can start investing in your future like a pro. Let’s go!

What is a 401(k)? 💼

A 401(k) is an employer-sponsored retirement savings plan that lets you invest a portion of your salary before taxes(Traditional) or after taxes (Roth 401(k)). The IRS limits how much you can contribute each year—for 2025, the cap is $23,500. Think of it as a future-you piggy bank. The money you put in now grows over time, and when you retire, you can withdraw it to cover your living expenses.

For example, if Sarah contributes $500/month for 30 years with an 8% ^[1] return. She could have $700,000+ by retirement.

Traditional 401(k) vs. Roth 401(k) – Which One is For You? 🤔

Traditional 401(k): Tax Saver Now, But You’ll Pay Later

Your contributions come from pre-tax money, so your paycheck takes a smaller tax hit today.
Your money grows tax-free, but when you cash out in retirement, the IRS takes out taxes.

Example: Sarah stashes away $500/month for 30 years, earning an 8% return. Boom—she’s got $700,000+ by retirement! But, plot twist: she still owes taxes on every withdrawal. If her tax rate is higher at retirement, she could end up paying way more!

Roth 401(k): Pay Upfront, Enjoy Tax-Free Riches Later

Your contributions come from after-tax money, so your future self gets to withdraw every penny tax-free.
You need to keep the account for at least 5 years before pulling out tax-free cash.

Example: Emma also saves $500/month for 30 years with the same 8% return. She hits $700,000+, but unlike Sarah, she keeps every last dollar—no tax surprises! If she thinks she’ll be in a higher tax bracket later, this is a serious win.

If you think your tax rate will be higher in retirement, a Roth 401(k) might be better. If you want tax savings now, go for a Traditional 401(k). Some employers let you split contributions between both!

Other 401(k) Good-to-Knows:

✔ Loans & Hardship Withdrawals – You might be able to borrow from your 401(k) for emergencies, but you have to pay it back.

✔ Early Withdrawals – You can begin to withdraw from your 401(k) without penalty when you reach age 55.

Employer Match & Vesting – Don’t Leave Free Money on the Table! 🎁💸

💰 Employer Match = FREE MONEY
Many companies give you extra cash for retirement just for contributing to your 401(k)!
Example: Sarah makes $60,000/year and puts 5% ($250/month) into her 401(k). Her employer matches 50%, adding $125/month. Over 30 years (at 8% growth), her employer’s match alone could grow to $245,000+!

⏳ Vesting – You Gotta Stay to Keep It!
Some companies require you to work a few years before you fully own their contributions.
Example: Sarah’s company matches 5% of her salary ($3,000/year) but has a 3-year vesting schedule:

Year 1: She owns 33% ($1,000)
Year 2: She owns 66% ($2,000)
Year 3: She’s fully vested and keeps the full $3,000/year match.

🚨 This is just an example of vesting. Always check with HR to know your company’s rules!

What Happens to Your 401(k) When You Change Jobs? 🧐

When you switch jobs, you have three options:

Leave it with your old employer (if allowed, but managing multiple accounts can get messy)
Move it to your new employer’s 401(k) (if they accept rollovers).
Roll it into an IRA (more investment options).

🚨 Avoid Cashing Out! If you withdraw your 401(k) early, you’ll pay income taxes + a 10% penalty—that’s a lot of money lost. Try to avoid this unless absolutely necessary!

How Your 401(k) is Invested 📊

✅ Index Funds – Instead of trying to pick winning stocks, index funds spread your money across many companies. They’re low-cost and great for long-term growth but can be volatile.
✅ Bonds – loans you give to companies or the government, and they pay you back with interest over time. Bonds are much safer than stocks but also have lower returns.

✅ Target-Date Funds – This fund starts with more stocks (higher growth, higher risk) when you’re young, and automatically shifts to safer investments (like bonds) as you near retirement. All you do is pick a fund with your target retirement year (e.g., 2050, 2060), and it does the rest!

Most employers automatically enroll you in a target-date fund, but you can customize your investments based on your goals!

Required Minimum Distributions (RMDs) ⏳

Once you turn 73, the IRS requires you to start withdrawing a minimum amount from your Traditional 401(k) each year (unless you’re still working). If you skip RMDs, you could owe a 25% penalty—yikes!

Quick 401(k) Checklist📋

Figure out your goal – Into Financial Independence Retire Early (FIRE)? This is where you start planning ahead. (More on that in future posts! )
Example: Sarah invests $1,000/month instead of $500. With an 8% return, she could hit $700,000+ in just 15 years instead of 30!

Start ASAP – Compound growth is your bestie.

Track old accounts – Don’t let an old 401(k) get lost in the void!

How to Start Your 401(k)🚀

📞 Talk to HR and Sign Up – Ask if they offer a 401(k), what type (Traditional or Roth), if they match contributions and if they have a vesting schedule. Your employer should provide a setup process.

💰 Choose a Contribution % – At minimum, contribute enough to get the full employer match.

📈 Pick Your Investments – You can adjust based on your risk tolerance and financial goals.

👩‍💻 Self-Employed? – Look into a Solo 401(k) for small business owners & freelancers!

If you’re in your 20s or early 30s, retirement might seem light-years away, but trust me—starting now makes a HUGE difference. Let’s keep the convo going! Are you contributing to a 401(k)? Drop a comment below!

Until next time,

Your fave finance girlie 💖✨

^[1] The 8% annual return I used in examples comes from the historical average return of the U.S. stock market over the long term. The S&P 500, which tracks 500 of the biggest U.S. companies, has averaged around 7-10% per year (before inflation) over the past several decades.

Resources

How to Look Up All Your 401(k) Accounts

Estimate your balance at retirement