You have probably heard 401k accounts mentioned before and have noticed that they're a popular method for saving for retirement. But with so many options out there today for you to save for retirement, why are these accounts so popular? The reasons below help summarize how these accounts are built with your success in mind, and why they're such an important part of your retirement savings plan.
-- #1 They're extremely easy, both to set up and to maintain. You set up your account through your employer and choose from a set of plans how you'd like to invest. The plans are made up of stocks, bonds, money market accounts and other investments. They're usually grouped together by the level of risk they represent-there will be plans with higher levels of risk and higher returns, or plans with lower levels of risk and lower returns. You choose the plan that you think will work best for you and adjust when you see fit. You decide how much of your income you'd like to invest and that amount will be taken out of your paycheck before taxes are taken out and invested without anything else required from you.
-- #2 The 401k contribution match from your employer. This match is the primary reason these accounts are so important. Some employers don't offer this option so you'll want to check with your plan provider. Basically how they work is that your employer will offer to match your contributions up to a certain percentage of your income. So, if you contribute three percent of your income to your account your employer will also contribute that amount of money. This is a great benefit you won't be seeing anywhere else.
-- #3 Your contributions are traditionally taken from your pretax income. This means, among other things, that some of the money you would have been spending in your taxes is now being invested and earning you returns each year until you reach retirement. You will pay taxes on this money when you withdraw it in retirement, but until that time this money is working for you.
-- #4 Because if you don't plan for your retirement, who will? I think this one speaks for itself.
Hopefully now you can see why your 401k is so important. Remember that no matter what you decide to do, the most important thing is simply not to ignore it and do something to save for retirement.
-- #1 They're extremely easy, both to set up and to maintain. You set up your account through your employer and choose from a set of plans how you'd like to invest. The plans are made up of stocks, bonds, money market accounts and other investments. They're usually grouped together by the level of risk they represent-there will be plans with higher levels of risk and higher returns, or plans with lower levels of risk and lower returns. You choose the plan that you think will work best for you and adjust when you see fit. You decide how much of your income you'd like to invest and that amount will be taken out of your paycheck before taxes are taken out and invested without anything else required from you.
-- #2 The 401k contribution match from your employer. This match is the primary reason these accounts are so important. Some employers don't offer this option so you'll want to check with your plan provider. Basically how they work is that your employer will offer to match your contributions up to a certain percentage of your income. So, if you contribute three percent of your income to your account your employer will also contribute that amount of money. This is a great benefit you won't be seeing anywhere else.
-- #3 Your contributions are traditionally taken from your pretax income. This means, among other things, that some of the money you would have been spending in your taxes is now being invested and earning you returns each year until you reach retirement. You will pay taxes on this money when you withdraw it in retirement, but until that time this money is working for you.
-- #4 Because if you don't plan for your retirement, who will? I think this one speaks for itself.
Hopefully now you can see why your 401k is so important. Remember that no matter what you decide to do, the most important thing is simply not to ignore it and do something to save for retirement.
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