INVESTINGBUDGETING

The Benefits of Investing in a 401K

What is a 401(k)?

A 401(k) is a voluntary savings plan that is offered through an employer. The main benefit of a Traditional 401(k) is that it allows you to grow your retirement savings tax-deferred. Employees can choose a dollar amount or a percentage to have deducted every paycheck to go into their retirement savings.

401(k) tax benefits

Some of the tax benefits for a traditional 401(k) are, you don’t pay taxes on funds you’ve saved until you withdraw it when you retire. These saved funds are not being counted as taxable income, so it could leave you in a lower tax bracket come tax season. For a Roth 401(k), you pay taxes on your contributions now, but your earnings are tax exempt and withdrawals are tax free when you retire.

401(k) company match

Many employers will match employee contributions up to a specified percentage of your income, which can be very helpful in growing your retirement savings. Employer matches are also tax deferred, meaning you won’t owe taxes on what they contributed until you make withdrawals in retirement.

Some takeaways

A 401(k) is a great way to prepare for retirement and your golden years. Your earnings will compound and grow exponentially over time. If your employer offers a 401(k) retirement plan, make sure you enroll and earn the match to grow your investments.

Sources:

• https://www.investopedia.com/articles/retirement/08/401k-info.asp