Boy's first job

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Offshore
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Boy's first job

Post by Offshore » Sun Jul 29, 2018 1:40 pm

Our teenage son started his first job, collecting shopping carts from the parking lot of our local grocer. Bottom rung of the employment ladder, but we're proud he found the job by himself. He earns about $9.70/hour and he's over the moon with this wage! Here is my question... his employer will contribute a company match to a 401(k). They contribute $0.40 for every dollar up to 3% of wages in the first year. It goes up 1% per year to a maximum of 5%.

Alternatively, I think I can open a Roth 401(k) and contribute the full amount of his before tax earnings.. I think. Is this correct? Would he be better off not opening an employer sponsored 401(k) and having me contribute a larger amount? What are the considerations at play here?

Many thanks.
Offshore

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Re: Boys first job

Post by Sandtrap » Sun Jul 29, 2018 1:43 pm

Offshore wrote:
Sun Jul 29, 2018 1:40 pm
Our teenage son started his first job, collecting shopping carts from the parking lot of our local grocer. Bottom rung of the employment ladder, but we're proud he found the job by himself. He earns about $9.70/hour and he's over the moon with this wage! Here is my question... his employer will contribute a company match to a 401(k). They contribute $0.40 for every dollar up to 3% of wages in the first year. It goes up 1% per year to a maximum of 5%.

Alternatively, I think I can open a Roth 401(k) and contribute the full amount of his before tax earnings.. I think. Is this correct? Would he be better off not opening an employer sponsored 401(k) and having me contribute a larger amount? What are the considerations at play here?

Many thanks.
Offshore
First: Congratulations to both of you!!!

Think of the company matching as "free money". By "contribute" do you mean that you are "also" opening a Roth for him as well?
Not clear on this.
j

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Re: Boys first job

Post by sport » Sun Jul 29, 2018 1:44 pm

The match is "free money". I would consider contributing in the 401k up to the match. Then, put the rest into an IRA. When he is no longer an employee of this company, he can roll over the 401k into an IRA.

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Re: Boys first job

Post by LadyGeek » Sun Jul 29, 2018 1:53 pm

This thread is now in the Personal Finance (Not Investing) forum (employer retirement plan). I also fixed a typo in the thread title, "Boys" to "Boy's".
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Re: Boy's first job

Post by libralibra » Sun Jul 29, 2018 2:47 pm

Assuming you meant to say Roth IRA in the 2nd paragraph, he can do both if his work plan is a Roth 401k since that doesn't lower his earned income.

For the match, you might want to check if there is a vesting period. Sometimes you have to work a minimum number of years before the money is yours to keep.

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Re: Boy's first job

Post by FBN2014 » Sun Jul 29, 2018 2:55 pm

That was my first job also but I was a bag boy also, ha-ha. Fifty years ago now and I made $1.65/hour. Congrats to your son that he sees the value in work and saving for the future, not sitting at home playing video games. My daughter started working at age 14 scooping ice cream at the mall. She learned the value of hard work and delayed gratification of wants. Served her well as she busted her behind in college and grad school and does very well now.
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Re: Boy's first job

Post by JoeRetire » Sun Jul 29, 2018 3:11 pm

Offshore wrote:
Sun Jul 29, 2018 1:40 pm
He earns about $9.70/hour and he's over the moon with this wage!
He should be!

Back while the earth was still cooling, my first real job was at a local supermarket. $1.915 per hour.
Here is my question... his employer will contribute a company match to a 401(k). They contribute $0.40 for every dollar up to 3% of wages in the first year. It goes up 1% per year to a maximum of 5%.
Thus he should start out putting at least 3% of his wages in the 401(k).
Alternatively, I think I can open a Roth 401(k) and contribute the full amount of his before tax earnings.. I think.
Additionally, not alternatively.

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Re: Boys first job

Post by delamer » Sun Jul 29, 2018 3:30 pm

sport wrote:
Sun Jul 29, 2018 1:44 pm
The match is "free money". I would consider contributing in the 401k up to the match. Then, put the rest into an IRA. When he is no longer an employee of this company, he can roll over the 401k into an IRA.
Good advice.

How much do you expect him to make this year? And is there a vesting schedule for the employer match?

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Re: Boy's first job

Post by Offshore » Sun Jul 29, 2018 4:53 pm

Thank you for your replies.
We have homework to do regarding vesting period and such. Appreciate the sharing of first job work experiences. I can remember mine too (besides a paper route). I was a restaurant dishwasher. Hot and dirty work for minimum wage. I can't remember the wage, but I do remember the relationships working in the restaurant. Great stuff!

Offshore

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Re: Boy's first job

Post by Kenkat » Sun Jul 29, 2018 5:00 pm

Also be sure that the match applies to part time employees and check out any fees as well.

My son got a first job recently washing dishes at a local nursing / assisted living facility run by a large healthcare institution here in town. He was excited about the 401k offered until he learned that the match only applied to employees working more than 1,000 hours a year and there was a fixed $37.50 / qtr. administration fee paid by employees. So - no 401k.

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Re: Boy's first job

Post by spoco79 » Sun Jul 29, 2018 5:06 pm

My first job was shagging golf balls at a driving range. Paid $4.75 an hour. Had to drive around in one of those little carts with the cage on it while everyone tried to hit me.

A guy nailed me one day and then offered to buy me lunch. He was one of the most successful people in my hometown - owned a lot of timber land and invested well. You would have never known it, but the man died recently and was worth more than $10 million. He taught me the value of "Big Hat, No Cattle" in that 90 minute lunch.

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Re: Boy's first job

Post by investingdad » Sun Jul 29, 2018 7:02 pm

My first job in 1989 was working in the kitchen at Burger King making 3.75 an hour. That's about $7.80 now so it sounds like minimum wage jobs pay a bit more.


I came home smelling like fry grease every day.

I did eat a lot of BK food at no cost, however. That's where I discovered the combination of salty fries washed down by chocolate milkshake...a truly heavenly combo.

I also learned that working minimum wage jobs was not a good long term bet.


Congrats!

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Re: Boy's first job

Post by MotoTrojan » Sun Jul 29, 2018 7:42 pm

Yup. And at his income I’d use a Roth 401k if that’s an option, in addition to a Roth IRA (not through work). Don’t use a traditional 401k when you’re paying almost no tax anyway.

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Re: Boy's first job

Post by delamer » Sun Jul 29, 2018 7:54 pm

MotoTrojan wrote:
Sun Jul 29, 2018 7:42 pm
Yup. And at his income I’d use a Roth 401k if that’s an option, in addition to a Roth IRA (not through work). Don’t use a traditional 401k when you’re paying almost no tax anyway.

Why pass up the match, even if it is in a traditional 401(k)?

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Re: Boy's first job

Post by FIREchief » Sun Jul 29, 2018 7:59 pm

I would take the match and then pursue Roth IRA (hopefully with a 100% match from mom/dad??). Even if tIRA, there may be college years when Roth conversions will be free.

And, congrats on having a kid who's willing to work for a dollar. In most cases I'm aware of, it's because mom and dad never gave the kids money for free. That's a good thing.
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Re: Boy's first job

Post by psteinx » Sun Jul 29, 2018 9:47 pm

I don't think I would rush to sign a ~16 year old kid up for a 401k. A lot of first jobs don't last long, for a variety of reasons. See if he's still there after 3-4 weeks and likes it.

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Re: Boy's first job

Post by Grt2bOutdoors » Sun Jul 29, 2018 9:53 pm

I would do a ROTH IRA, if your son leaves his employer and the value of account is less than $5K they will send a check that he can rollover. However, if the value of son's 401K plan is less than say $1K, where can you roll it over to? Maybe Schwab but then it will get eaten up by fees. Maybe a brokerage firm? I don't know.
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Re: Boy's first job

Post by sport » Mon Jul 30, 2018 8:54 am

Grt2bOutdoors wrote:
Sun Jul 29, 2018 9:53 pm
I would do a ROTH IRA, if your son leaves his employer and the value of account is less than $5K they will send a check that he can rollover. However, if the value of son's 401K plan is less than say $1K, where can you roll it over to? Maybe Schwab but then it will get eaten up by fees. Maybe a brokerage firm? I don't know.
If less than $1K, it could be rolled into an IRA savings account, or CD, at a bank. In later years, when he has enough for a brokerage account, such as Vanguard, the bank IRA can be transferred into that.

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Re: Boy's first job

Post by mak1277 » Mon Jul 30, 2018 8:58 am

Does your son want to contribute to a 401k? I, for one, think he should be allowed to keep all of his money for gas, girls, college and whatever else and not be coerced into saving it in a retirement fund. Lots and lots of time for that in the future.

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Re: Boy's first job

Post by Flyer24 » Mon Jul 30, 2018 9:06 am

psteinx wrote:
Sun Jul 29, 2018 9:47 pm
I don't think I would rush to sign a ~16 year old kid up for a 401k. A lot of first jobs don't last long, for a variety of reasons. See if he's still there after 3-4 weeks and likes it.
I was thinking the same thing. I think the best lessons for teens is learning the value of money. Let him open up an online savings and/or checking account. Maybe let him have some savings goals (car, etc). Put part of paycheck in savings. Learn to give some to charity. Finally, spend some of the short term money so he sees much work goes into paying for things like clothes etc. You can only stretch money so far and he will learn to budget.

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Re: Boy's first job

Post by investingdad » Mon Jul 30, 2018 9:11 am

mak1277 wrote:
Mon Jul 30, 2018 8:58 am
Does your son want to contribute to a 401k? I, for one, think he should be allowed to keep all of his money for gas, girls, college and whatever else and not be coerced into saving it in a retirement fund. Lots and lots of time for that in the future.
This is a valid point.

If he's 15 or 16, having the freedom to spend it all and equate hours of work to [insert frivolous teen purchase here], it may crystallize a lot of valuable lessons.

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Re: Boy's first job

Post by Glockenspiel » Mon Jul 30, 2018 9:13 am

FBN2014 wrote:
Sun Jul 29, 2018 2:55 pm
That was my first job also but I was a bag boy also, ha-ha. Fifty years ago now and I made $1.65/hour. Congrats to your son that he sees the value in work and saving for the future, not sitting at home playing video games. My daughter started working at age 14 scooping ice cream at the mall. She learned the value of hard work and delayed gratification of wants. Served her well as she busted her behind in college and grad school and does very well now.
$1.65/hour fifty year ago (1968) translates to $12.19/hour in 2018 dollars. You made 25% more on an hourly basis 50 years ago, than this kid makes now.

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Re: Boy's first job

Post by FBN2014 » Mon Jul 30, 2018 9:37 am

Glockenspiel wrote:
Mon Jul 30, 2018 9:13 am
FBN2014 wrote:
Sun Jul 29, 2018 2:55 pm
That was my first job also but I was a bag boy also, ha-ha. Fifty years ago now and I made $1.65/hour. Congrats to your son that he sees the value in work and saving for the future, not sitting at home playing video games. My daughter started working at age 14 scooping ice cream at the mall. She learned the value of hard work and delayed gratification of wants. Served her well as she busted her behind in college and grad school and does very well now.
$1.65/hour fifty year ago (1968) translates to $12.19/hour in 2018 dollars. You made 25% more on an hourly basis 50 years ago, than this kid makes now.
:D He's under paid! Demand a raise!
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Re: Boy's first job

Post by MotoTrojan » Mon Jul 30, 2018 10:01 am

delamer wrote:
Sun Jul 29, 2018 7:54 pm
MotoTrojan wrote:
Sun Jul 29, 2018 7:42 pm
Yup. And at his income I’d use a Roth 401k if that’s an option, in addition to a Roth IRA (not through work). Don’t use a traditional 401k when you’re paying almost no tax anyway.

Why pass up the match, even if it is in a traditional 401(k)?
Do companies usually match traditional but not Roth 401k? Never had a match or selected Roth 401k so maybe I’m out of the loop.

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Re: Boy's first job

Post by J Dough » Mon Jul 30, 2018 11:12 am

MotoTrojan wrote:
Mon Jul 30, 2018 10:01 am
delamer wrote:
Sun Jul 29, 2018 7:54 pm
MotoTrojan wrote:
Sun Jul 29, 2018 7:42 pm
Yup. And at his income I’d use a Roth 401k if that’s an option, in addition to a Roth IRA (not through work). Don’t use a traditional 401k when you’re paying almost no tax anyway.

Why pass up the match, even if it is in a traditional 401(k)?
Do companies usually match traditional but not Roth 401k? Never had a match or selected Roth 401k so maybe I’m out of the loop.

At my employer (I think this is generally true at other employers, but I could be wrong), the employer match will be given whether the employee makes pre or post tax contributions (traditional or Roth). However, the employer match will always be pre-tax. So, if I, or the OP's son, contributes to a Roth-401k, the employer match would essentially be in a separate traditional 401k. Not all employers that offer a 401k offer the ability to do Roth 401k contributions.

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Re: Boy's first job

Post by delamer » Mon Jul 30, 2018 11:49 am

MotoTrojan wrote:
Mon Jul 30, 2018 10:01 am
delamer wrote:
Sun Jul 29, 2018 7:54 pm
MotoTrojan wrote:
Sun Jul 29, 2018 7:42 pm
Yup. And at his income I’d use a Roth 401k if that’s an option, in addition to a Roth IRA (not through work). Don’t use a traditional 401k when you’re paying almost no tax anyway.

Why pass up the match, even if it is in a traditional 401(k)?
Do companies usually match traditional but not Roth 401k? Never had a match or selected Roth 401k so maybe I’m out of the loop.
We don’t know what type of 401(k) is being offered. So my point was if the only option is a traditional 401(k), then don’t pass up the match to invest in a Roth IRA.

Flyer24
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Re: Boy's first job

Post by Flyer24 » Mon Jul 30, 2018 12:10 pm

Let the young man decide. It is his money. Give him some ideas and maybe some incentives (matching). Don’t overcomplicate it.

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Re: Boy's first job

Post by SimonJester » Mon Jul 30, 2018 2:17 pm

Flyer24 wrote:
Mon Jul 30, 2018 12:10 pm
Let the young man decide. It is his money. Give him some ideas and maybe some incentives (matching). Don’t overcomplicate it.
+1000
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Re: Boy's first job

Post by Earl Lemongrab » Mon Jul 30, 2018 2:46 pm

Grt2bOutdoors wrote:
Sun Jul 29, 2018 9:53 pm
I would do a ROTH IRA, if your son leaves his employer and the value of account is less than $5K they will send a check that he can rollover. However, if the value of son's 401K plan is less than say $1K, where can you roll it over to? Maybe Schwab but then it will get eaten up by fees. Maybe a brokerage firm? I don't know.
Not sure what fees you think will eat up an account at Schwab. At any rate, their IRA minimum is $1000. Fidelity has no minimum and a good selection of funds.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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Re: Boy's first job

Post by tesuzuki2002 » Mon Jul 30, 2018 3:22 pm

Offshore wrote:
Sun Jul 29, 2018 1:40 pm
Our teenage son started his first job, collecting shopping carts from the parking lot of our local grocer. Bottom rung of the employment ladder, but we're proud he found the job by himself. He earns about $9.70/hour and he's over the moon with this wage! Here is my question... his employer will contribute a company match to a 401(k). They contribute $0.40 for every dollar up to 3% of wages in the first year. It goes up 1% per year to a maximum of 5%.

Alternatively, I think I can open a Roth 401(k) and contribute the full amount of his before tax earnings.. I think. Is this correct? Would he be better off not opening an employer sponsored 401(k) and having me contribute a larger amount? What are the considerations at play here?

Many thanks.
Offshore
He should definitely get the match!! If his 401K does a roth option... he should contribute there.. The Match will go into the pre-tax side. In addition, you could open a Roth IRA and if you were also looking to give a parental match.. you can do that there! Just remember he can only put in 100% of his total annual income.

What a way to jumpstart retirement savings. He will be done needing to save for retirement by the time he is 25.

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Re: Boy's first job

Post by Grt2bOutdoors » Mon Jul 30, 2018 4:38 pm

Earl Lemongrab wrote:
Mon Jul 30, 2018 2:46 pm
Grt2bOutdoors wrote:
Sun Jul 29, 2018 9:53 pm
I would do a ROTH IRA, if your son leaves his employer and the value of account is less than $5K they will send a check that he can rollover. However, if the value of son's 401K plan is less than say $1K, where can you roll it over to? Maybe Schwab but then it will get eaten up by fees. Maybe a brokerage firm? I don't know.
Not sure what fees you think will eat up an account at Schwab. At any rate, their IRA minimum is $1000. Fidelity has no minimum and a good selection of funds.
It was a hypothetical not based on actual knowledge or research. One should remember while we try to be helpful in our response, those asking the questions should verify twice before signing on the dotted line.
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Re: Boy's first job

Post by JGoneRiding » Mon Jul 30, 2018 4:45 pm

Grt2bOutdoors wrote:
Sun Jul 29, 2018 9:53 pm
I would do a ROTH IRA, if your son leaves his employer and the value of account is less than $5K they will send a check that he can rollover. However, if the value of son's 401K plan is less than say $1K, where can you roll it over to? Maybe Schwab but then it will get eaten up by fees. Maybe a brokerage firm? I don't know.
Schwab has THE LOWEST fee s&p 500 index fund at only 0.03% AND you only need $100 to start so I don't know why you would disparage them.

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Re: Boy's first job

Post by Grt2bOutdoors » Mon Jul 30, 2018 4:58 pm

JGoneRiding wrote:
Mon Jul 30, 2018 4:45 pm
Grt2bOutdoors wrote:
Sun Jul 29, 2018 9:53 pm
I would do a ROTH IRA, if your son leaves his employer and the value of account is less than $5K they will send a check that he can rollover. However, if the value of son's 401K plan is less than say $1K, where can you roll it over to? Maybe Schwab but then it will get eaten up by fees. Maybe a brokerage firm? I don't know.
Schwab has THE LOWEST fee s&p 500 index fund at only 0.03% AND you only need $100 to start so I don't know why you would disparage them.
It was not intentional. Did you read my prior post? Does Schwab charge IRA fees? I don’t know and I said as much in the original post. Guess you missed the part that said “I don’t know”.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Earl Lemongrab
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Re: Boy's first job

Post by Earl Lemongrab » Mon Jul 30, 2018 11:34 pm

Grt2bOutdoors wrote:
Mon Jul 30, 2018 4:58 pm
It was not intentional. Did you read my prior post? Does Schwab charge IRA fees? I don’t know and I said as much in the original post. Guess you missed the part that said “I don’t know”.
I'm not aware of any discount brokerage that charges ongoing account fees.
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Re: Boy's first job

Post by A440 » Tue Jul 31, 2018 6:27 am

We opened a custodial Roth IRA for my son this summer after he started his first job.
viewtopic.php?f=1&t=251282

We closed his Schwab custodial UTMA and used the money to fund the custodial Roth IRA (less than he will earn this summer through Dec). We chose Schwab's Total Stock Market for the holding. No fees, low expense ratio. The website and Schwab are a little different than Vanguard, and Schwab did make a mistake (or two) when opening the custodial Roth. We would have stayed with Vanguard, but the $3,000 ($1,000 for STAR Fund) initial investment was higher than he will earn this summer and until the end of the year and he wanted to be in a Total Stock Market fund.

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Re: Boy's first job

Post by Spirit Rider » Wed Aug 01, 2018 12:54 pm

Late to the party and the OP hasn't been back since the first day, but here goes anyway.

OP, as has been mentioned. Are you sure your son is even eligible for the 401k plan and/or eligible for employer matching contributions? He may have just received a standard new hire packet of the benefits offered in general.

In 2013 the IRS completed a compliance questionnaire. About 90% of plans have an age (>= 18) and/or length of service (up to 1 year) requirement(s). Also, about 75% of plans have an an age (>= 18) and/or 90% of plans have length of service (up to 1 year) requirement(s) for employer matching contributions. You need to do a little more research to verify.

If he is eligible for the 401k, He should contribute the minimum necessary to get the match, preferably to the designated Roth account if available. Then the priority would be a Roth IRA. The maximum contribution to the IRA is the lesser of his W-2 Box 1 wages or $5500. The maximum 401k contribution would be net pay (<= 92.35% of gross pay).

As someone mentioned. Roth 401k contributions do not reduce the compensation available for IRA contributions. It is one of the rare cases where the IRS allows you to double dip on the same income. His total maximum contributions would be net pay to Roth 401k + 100% of gross pay to Roth IRA.

Note: Obviously with some of the money coming from elsewhere. The bank of mom and dad can match/reimburse his contributions at whatever rate they want.

I would not be concerned about the amount of pre-tax employer contributions. Even with the "Kiddie" tax and earned income. When he left the employer, he could likely rollover up to $350 to a Roth IRA per year tax free.

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Epsilon Delta
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Re: Boy's first job

Post by Epsilon Delta » Wed Aug 01, 2018 3:05 pm

If he is working 10 hours a week the match will amount to about $60 per year. Perhaps more, perhaps less. So it is a fairly small amount. You could make a case that this is not worth the effort. Or you could say it is worth it for the eduction. But some of the above responses look like a little too much micro optimization

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Re: Boy's first job

Post by Spirit Rider » Wed Aug 01, 2018 8:56 pm

My point was to counter the reply that he shouldn't contribute to the 401k to get the match because it would be pre-tax.

Flyer24
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Re: Boy's first job

Post by Flyer24 » Wed Aug 01, 2018 10:21 pm

Epsilon Delta wrote:
Wed Aug 01, 2018 3:05 pm
If he is working 10 hours a week the match will amount to about $60 per year. Perhaps more, perhaps less. So it is a fairly small amount. You could make a case that this is not worth the effort. Or you could say it is worth it for the eduction. But some of the above responses look like a little too much micro optimization
I was thinking the same thing. This is a little part time job. You are probably talking $1.40 or so a week match. It doesn’t seem worth the hassle. Teaching a kid to learn to manage their paycheck wisely seems more important. A proper savings account would be where i would lean.

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