What is 401k? This is an investment account that many employers offer to their employees. The plan allows for pre-tax contributions, which means your money grows tax-free over time. These plans are beneficial not only to the employee but also to the employer because they are able to attract quality talent by offering this type of retirement account.
This article will talk about why it is vital for you and your employer to have a 401k plan in place if you don’t already have one!
It Is an Investment
This right here is an investment account that you open when a company employs you. 401k is an account with tax benefits for retirement savings. When you contribute money to the 401k, it reduces your taxable income and allows you to pay less in taxes now than what your salary would indicate.
If you have switched companies, you might be concerned about your 401k funds. Well, there are companies out there that can help you find lost money.
It Can Grow
To get the most out of your 401k, you should contribute enough to receive the full company match. Then you can decide to put more money in after that or not. The critical thing is to start saving as soon as possible, so the money has time to grow. That’s why it is important even if you are just starting out, especially if your employer offers a match on contributions.
It Can Help Lower Tax Liabilities
You can contribute on a pre-tax basis, which means that you’re reducing your taxable income on the day of contribution. This is very useful for lowering tax bills from April to October each year and not paying taxes until later when you withdraw from 401k after retirement age.
The contributions grow in this account until they are withdrawn and used. Your employer will match your contributions up to a certain point, so the more you put in, the more they will contribute.
It Can Be Withdrawn Before Retirement Age
There are some exceptions to this rule, however. If you are under 59½, there usually is an early withdrawal penalty of around ten percent.
The money contributed into the 401k account will come out after taxes have been paid on it. So, if you withdraw before retirement age with no penalties, that is all untaxed income.
Now that you know the importance of 401k, it’s time to start saving for your future. If you’re employed, this is one of the best accounts out there to save money – and if you do decide to take advantage, make sure your employer matches some contributions so not only are you getting tax benefits but also free money from an employer!
As you can see, there are many benefits to starting a 401k. But we don’t want to over-sell it either—we only wanted to provide the basics and get your wheels turning on this topic. If you think that saving for retirement is important (and who doesn’t?) and you know what type of account would be best for your needs, then open an account today!
