5 Things You Should Do Before Opening a 401(k)


Determine Your Contribution

Figure out how much of your salary you can contribute comfortably.
Figure out how much of your salary you can contribute comfortably.

Determining your 401(k) contributions can be tricky. According to U.S. News, most employees should save 12 percent of their salary throughout their working career

[source: Brandon]. However, this target can be different depending on when you plan to retire, periods of joblessness, how much money you'll need to pay for your retirement lifestyle, and many other factors. Talk with a financial advisor to get a rough estimate of the number.

As of 2012, federal regulations limit 401(k) contributions to $17,000 a year for employees under age 50 and $22,500 for employees 50 and older -- or 100 percent of your salary, whichever figure is less. (This number is the amount you contribute yourself, not including your employer's contribution.) However, many companies limit your contributions to a specific percentage of your salary. Look through your 401(k) paperwork and find out how much money your employer will allow you to invest.

Many companies kick in additional money to your 401(k) plan -- often 50 cents for every dollar you contribute for the first 6 percent of your salary that you save [source: CNN Money]. Plan to invest as much of your salary as your employer will match, even if you don't like the selection of investments offered in your plan. Understand your employer's vesting schedule, which designates the number of years you need to be employed at a company before you're eligible to receive the full employer match. And when you receive a raise, confirm that you've increased your contribution.

One the next page -- decisions, decisions, decisions.