Thursday, July 31, 2014
ADVICE FOR A NEW GRADUATE STARTING OUT IN HIS/HER FIRST FULL-TIME JOB
1. Claim Single-1, or Single-0, on your Form W-4 for federal and state withholding. Do NOT claim more than 1 exemption.
2. Participate in your employer’s 401(k) or 403(b) plan. If cash-flow permits, contribute the maximum, which for 2014 is $17,500. If you cannot contribute the maximum try to contribute at least enough to qualify for the maximum amount of any employer matching contribution. If your employer offers a ROTH 401(k) or 403(b) option choose this option. As an alternative, if you are contributing the maximum put 50% in a “traditional” account and 50% in a ROTH account.
3. If you contribute toward the cost of employer-paid group health insurance premiums via payroll deduction, and you are offered an option, elect to have your contributions be treated as “pre-tax”.
4. Participate in your employer’s medical expense Flexible Spending Account (FSA). Be conservative and start with $1,000. You can increase your contribution in subsequent years once you get a handle on your annual out-of-pocket medical expenses.
5. If you have any cash from graduation gifts left over open a ROTH IRA account and use this money to fund your 2014 contribution. The maximum you can contribute to an IRA, “traditional” and ROTH combined, for 2014 is $5,500.
6. Take an empty coffee can, or other form of “piggy bank”, and put it in your bedroom. Each week put $10, $20, or $50 in this “bank” (if you choose $20, but $20 in each week). On January 2nd of 2015 take the money that has accumulated in this “bank” and contribute it to your ROTH IRA for tax year 2015. Continue this practice for 2015 and subsequent years.