Tips for Working in an Entry-Level Position

After you’ve graduated, maintaining your finances on an individual basis can be daunting. Fully researching your employer’s retirement plan options will give you a greater understanding of what to expect from your retirement plan as also how to manage a budget your savings.

Where should you begin?

It is always a good idea for new graduates to begin their retirement plans as soon as possible. The performance of the markets should not be a deterrent, because the investment can always be in cash or something very safe.  Studies and experience show that building a successful retirement nest egg is more dependent on the saving discipline, which is much more important than the investment performance. In addition the longer an amount is earning the more it will be worth at retirement.

401(k) and 403(b): These plans are employer-sponsored plans. A 403(b) plan is one sponsored by a tax exempt organization, although recent legislation now allows tax exempt organizations to have 401(k) plans. 

It is usually better for an employee to have an employer-sponsored plan, especially if the employer makes a contribution to the plan for the plan’s participant/employees. In addition, as part of these plans, employers are required to provide safeguards and help to the employees in terms of investments. The employee’s contributions to a 401(k) or a 403(b) plan are always the property of the employee and are not subject to use or confiscation by the employer.

IRA: An employee may want to consider an IRA if there is no employer-sponsored fund offered, if the amounts available for deferral in the employer plan are less than the maximum the employee could defer, in which case the employee may want an IRA to supplement the employer plan, or if the employee views the employment as temporary or unstable for some reason. The choice of a standard IRA or a Roth comes down to tax considerations. A standard IRA is tax deductible and its eventual proceeds are taxable. A ROTH is not deductible, but its proceeds are not taxable, and its distribution requirements are more liberal. However, it is important to remember that the eligibility requirements for an IRA, including the contribution limits, can be complicated in some cases.

Most of the time it makes sense to use the employer’s plan, though there will be situations, e.g. temporary employment, unstable employer, where IRAs are a better option. Above all though, remember to save early and save often, even in an entry-level position.