18 Oct I’m 24. How much should I save in my retirement plan?

Q. I’m 24 and I just got my first full-time job with benefits. I have a choice of a Roth 401(k) and a regular 401(k), and there is a 4% match. How do I decide how much to save and in which account?
— Employed

A. First, congrats on getting your first full-time job.

We’re so glad you have decided to start saving for retirement at your young age.

The money you save today will be the most powerful dollars towards retirement because it will have so much time to grow, said Matt Rembish, a financial advisor with JFL Total Wealth Management in Boonton.

As a general rule, you should save between 10 and 12% of your gross income for your retirement if you start in your 20s, Rembish said.

“This percentage includes your match, so saving at least 6% of your gross income and the 4% match would get you in line with this goal,” he said. “At the very least, you should contribute 4% to take full advantage of your company’s match. Anything less would have you leaving money on the table.”

Now let’s talk about the Roth and the traditional 401(k) options.

In a Roth, you will pay the tax today, but in the future your contributions and earnings will come to you tax free, Rembish said.

“Most likely, you are in the lowest tax bracket of your lifetime,” he said. “Take advantage of that.”

You also have 40-plus years for this money to grow, he said, so you’re looking at a sizable amount of tax-free dollars in your future retirement pot. Rembish called these “your most powerful investment dollars,” so you should take advantage of that by having them tax-free when you retire.

Over time, he said, your income will grow, as will your tax bracket.

“Once you are in a high tax bracket, it would make sense to switch to a traditional, tax deductible, 401(k),” he said. “It’s not likely that you will be in the same high tax bracket in retirement. In this case, you would want to defer taxation on contributions to the future when your tax bracket would be lower.”

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This story was originally published on Oct. 18, 2021.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.