I’ll be honest, I only have a loose understanding of 401k. Based on what I know, whatever amount I designate is to be taken out of my paycheck gasp and put into an account of some kind, where its free of taxes until I withdraw…at the age of 62 or whatever. And therein lies the problem – I’m impatient, and can’t imagine locking up what I earn for 40 years (I’m 23)!
Perhaps this is just me being short-sided, but I’d rather have access to that money now (where I can spend it on, say, school) as opposed to when I’m old, if I’m even still alive (if not, what a colossal waste, right?).
Now, to complicate matters, my employer does match my contribution 60% on the first 5% of my pay, which is essentially free money…40 years from now. If I understand correctly, I can withdraw funds early, but at a 10% penalty (is that right?) – would that not more than negate what my employer matches on my contributions?
So my question is two-fold: Why should I care about my 401k, as a 23 year old? And secondly, were I to contribute, would it make sense to contribute any more beyond the 5% my employer will match?