401K

A 401(k) plan is a retirement savings account that allows an employee to apply a portion of their salary into long term investments. Your employer may match your contribution up to a percentage. A 401(k) is eligible for special tax benefits under IRS guidelines. That means that the available balance in the account is determined by the contributions made to the plan and the performance of the investments. The investment earnings in a traditional 401(k) plan are not taxed until the employee withdraws that money, typically after retirement. After retirement, the account balance is entirely yours.

5 reasons to max out 401k

  1. Tax advantage: Contributions to a traditional 401(k) are taken directly out of your paycheck before federal income taxes are withheld. Because the contributions are pre-tax, it lowers your total taxable income.

  2. Financial control: You can contribute as much or as little as you want to your account (within the IRS limits). You also have the flexibility to change your contribution levels at any time.

  3. Putting your money to work: One of the biggest advantages of investing in a 401(k) early is compound interest. Compound interest is when you earn interest on the principal amount of investment plus any accumulated interest (it’s when you earn interest on interest)!

  4. Easily transferrable: If you change jobs, the money you have contributed to your 401(k) and its earnings belong to you. Depending on your plan type, you can transfer (without a fee) your 401k to a different brokerage firm. 

  5. Payroll deduction: You can make automatic contributions directly from your paycheck to your 401k. It makes saving a simple and effortless process. Since the deduction is taken before you get paid, you won’t miss the money. 

Additional facts for your 401k

  1. Employees can contribute up to $19,500 to their 401(k) plan for 2020 and 2021

  2. Anyone age 50 or over is eligible for an additional catch-up contribution of $6,500 in 2020 and 2021

  3. The general limit on total employer and employee contributions for 2020 is $57,000 (catch-up at $63,500) in 2020. In 2021 that amount rises to $58,000 (or $64,500 with the catch-up contribution)

  4. Withdrawing from an IRA or 401k before age 59 ½, you will likely owe both federal income tax and a 10% penalty on the amount that you withdraw.

"Someone's sitting in the shade today because someone planted a tree a long time ago"- Warren Buffet

With all investments, please perform research and choose the right investment option that is best for your current/future needs.