401(K) plans are tax-deferred retirement savings plans for employees set up by your employer. They are part of a family of retirement plans known as “defined contribution” plans – the amount contributed is defined by the employer or the employee.
Why should you invest in a 401(K) plan?
There are several reasons why investing in a 401(K) plan is advantageous to you:
- The money you contribute is free from Federal and State taxes
- Your employer receives tax benefits for contributing to your 401(K) – this is extra money for you
- There is a range of investment options and an expert does the actual investing according to your directions
- Any gains and earnings through this investment are also tax deferred
- You can take loans and hardship withdrawals under certain circumstances if allowed by the plan
- The money is deducted even before you receive your salary, making it easy to for regular saving & investing
Did you know that Increasing your retirement contribution percentage by just 1% can give your future a real boost?
Increasing the amount you contribute to your retirement account by just one percent can really boost your savings potential. Assume you are making $35,000 per year and contributing 5% of your salary to your 401k. That equals around $146 per month. In 20 years assuming a hypothetical rate of return of 8%, that savings could potentially grow to almost $86K. By increasing by just 1% (which is only around $30 more per month), than can potentially mean an additional $17,176 in twenty years to your retirement! See more information on 401(k) retirement planning.