Of the many ways to save for a successful retirement, a 401k is the most common in America. Sadly, many people are missing out on the many benefits a 401k provides because they do not know how to open a 401k.

Below we will quickly explain the 5 steps you need to take to open your own 401k and start reaping the financial rewards.

Step 1: Determine Eligibility

To open a 401k, you must first have one available. Since 401k are company sponsored retirement plans, you must work for a company that offers one in order to open it. Also, many companies require a waiting period once hiring a new employee. Reach out to your human resources department to see what their requirements are.

Step 2: Enroll in the Plan

Enrolling in the plan is essentially step 1B since it follows so close to the first step. If your company offers a 401k plan, then reaching out to your human resources and filing whatever forms they require is the next step you need to take.

Step 3: Choose your Contribution Amount

Understanding how much you want to contribute when you open a 401k is an important step. Because your 401k contributions are pre-tax, you need to make sure you can cover your expenses after contributing.

Also, you should have a plan on how much you will need in retirement. Knowing your end retirement goal will allow you to be confident in your monthly contribution amount.

See our posts on Budgeting and Compound Interest for more helpful information on these topics.

Step 4: Choose your Investment Options

A fourth step in how to open a 401k is deciding where you want to put your money. Having a diversified portfolio is important as well as knowing your risk tolerance. Talking to a financial professional, either at your company or personally, is helpful in this step.

Step 5: Capitalize on a Company Match

Many companies provide a 401k match when you open a 401k. A 401k match is simply when a company gives you free money up to a percentage of what you invest. For more information, see our article explaining why Americans are losing millions of dollars a year in free money.

The key to a quality retirement is time and consistency. For those hoping to open a 401k, understanding that the amount of money you contribute may not initially be large. However, even a small amount consistently invested over a large period of time can grow into a sizeable nest egg. Being consistent and starting when you are young is vitally important.