Does Your 401k Fit Your Retirement Plan?

A 401(K) is an essential part of anyone’s retirement plan. If you work for a company that offers a 401(K), you should definitely be checking it out as an investment option, especially if it comes with a company match.

This type of retirement account is tax advantaged. You can actually put deposits into it pre-tax, which reduces your overall taxable income. This means you pay less tax dollars during your working years. You also don’t pay tax on the interest that grows in your 401(K), which can mean huge savings for you. This type of retirement account grows tax free until retirement.

When you start to make withdrawals from your 401(K), you’ll have to pay taxes on the money then. However, you’re likely to be in a lower tax bracket when you retire. Overall, you’ll end up paying less in taxes with this retirement plan.

One excellent thing about a 401(K) is that you can sometimes get an employer match. Basically, your employer will match a certain percentage – normally up to about 50% – of the contributions you make into your account. If your employer match for retirement accounts is 10%, you can put in $1,000, and your employer will put in $100. That’s part of your benefits package, and it’s a huge perk because it’s basically free retirement money.

Sometimes you can control where your 401(K) is invested, but this isn’t always the case. Check with your HR department to get the skinny on the 401(K) retirement plans your employer offers. This should probably not be your only retirement investment, but it should certainly be high on the list. If you can, you should max out your retirement contributions to this account every year.

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