I’m often asked, “Why should I save through my workplace 401(k)?” Here are two compelling reasons to consider:
• Automatic savings: With a 401(k), you can effortlessly set aside money through payroll deductions – no extra effort needed.
• Out of sight, out of mind: Once you get used to not seeing that money in your bank account, saving for your retirement becomes simple.
You can put money into a 401(k) in two primary ways. One option is to make pre-tax contributions. This means you won’t pay taxes on that money until you withdraw it from your 401(k) account, allowing you to lower your taxable income for the year you contribute.
Your 401(k) plan may also offer a Roth option, but it’s important to note that this differs from an Individual Roth IRA, which is a personal account not connected to an employer and has lower contribution limits. With a Roth 401(k), you pay taxes upfront on the money you put into the account, which allows your money to grow tax-free. This can be particularly beneficial for young investors with a longer time horizon who anticipate having a higher income in retirement.
If your employer offers a matching contribution, you can boost your retirement savings by contributing to your 401(k) – essentially receiving free money! You can choose between pretax or Roth accounts and still qualify for the match.
Additionally, it’s important to be aware of the fees associated with your investments. Employer-sponsored 401(k) plans often provide lower cost options, as they typically offer institutionally priced shares – helping to minimize your expenses and maximize your savings over time.
• Automatic savings: With a 401(k), you can effortlessly set aside money through payroll deductions – no extra effort needed.
• Out of sight, out of mind: Once you get used to not seeing that money in your bank account, saving for your retirement becomes simple.
You can put money into a 401(k) in two primary ways. One option is to make pre-tax contributions. This means you won’t pay taxes on that money until you withdraw it from your 401(k) account, allowing you to lower your taxable income for the year you contribute.
Your 401(k) plan may also offer a Roth option, but it’s important to note that this differs from an Individual Roth IRA, which is a personal account not connected to an employer and has lower contribution limits. With a Roth 401(k), you pay taxes upfront on the money you put into the account, which allows your money to grow tax-free. This can be particularly beneficial for young investors with a longer time horizon who anticipate having a higher income in retirement.
If your employer offers a matching contribution, you can boost your retirement savings by contributing to your 401(k) – essentially receiving free money! You can choose between pretax or Roth accounts and still qualify for the match.
Additionally, it’s important to be aware of the fees associated with your investments. Employer-sponsored 401(k) plans often provide lower cost options, as they typically offer institutionally priced shares – helping to minimize your expenses and maximize your savings over time.