23 401(k) Plans A 401(k) plan is a smart way to grow your money—it allows employees to invest pretax dollars in an employer sponsored retirement plan. When you invest in a 401(k) plan, your employer deducts the amount that you’ve designated from your paycheck, and puts it into your account. The money in your account is then invested in an option of your choosing. The biggest advantage of a 401(k) plan is that many employers will make a matching contribution—which means that they will add their money to your account. Here's how Jacob's 401(k) plan works: Jacob has a new job earning $40,000 a year. He has instructed his employer to take 10% of his salary and put it in his 401(k) plan. Jacob knows that his employer will match his contributions up to 4% of his salary. At the end of the year, Jacob will have put $4,000 (10% of $40,000) into his 401(k) plan, and his employer will have added another $1,600 (4% x $40,000). This means that at the end of the year, Jacob will have $5,600 ($4,000 + $1,600) invested in his retirement plan. A 401(k) plan is an excellent, and relatively easy, way to grow your money. If you have an employer that offers this benefit, you would be wise to take advantage of it. If you don't have access to a 401(k), you can save for retire- ment on your own by investing in an IRA (Individual Retirement Account). The Rule of 72 Want to figure out how long it will take to double your money? Divide the number 72 by the interest rate you're getting on your money. This will give you the number of years it will take. For example, if your money is making 6% interest, your money will double in 12 years (72 divided by 6 = 12). Here's another example: Alyssa invested $1,000 and made a 9% return on her money. In eight years, she’ll have $2,000 (72 divided by 9 = 8).