401k Contributions

Have you maximized your 401k contributions this year? If not, there is still time. There are several good reasons to contribute the maximum amount allowed to your 401k retirement account. The government, the IRS, and possibly even your employer have enacted policies that make contributions to your 401k accout a key to a happy retirement and a bright future.

How can 401k plans make such a huge effect on your financial wellbeing both now and in the future? First of all, contributions to a 401k retirement account can be made from your before tax income. This can substantially lower your tax bill by placing you in a lower tax bracket, saving money and making it so you have more actual cash in your paycheck at the same time.

A second reason to maximize your contributions is that many employers match their employees’ contributions up to a fixed percentage of their income. If your employer participates in this sort of plan, it may effectively double the amount of money available for your retirement without a single extra penny of savings on your behalf. This kind of free money should never be turned down.

401k contributions come from pre-tax income, but this is not the only tax shelter they provide. Any investment earnings and interest from your 401k are completely tax free until you decide to withdraw them. In most accounts, a sizeable portion of the earnings are paid out in taxes; in a 401k, these earnings will themselves earn over years and even decades. This can mean a difference of tens of thousands of dollars.

Another reason to save for your retirement through a 401k plan is its stability. While the stock market goes up and down at an alarming rate, 401 retirement plans usually gain progressively without a lot of fluctuation or volatility. In the end, a 401k will give the security of a savings account with an exponentially greater interest yield. Combined with the tax advantages of 401k contributions, this type of retirement planning is a financial win-win situation.

Many 401k retirement plans are managed by the finance industry’s top advisors. This means that your 401k contributions are giving you access to the best advice and insight in the country. This type of guidance would normally come at a premium, but the fees for a 401k are quite low because the advisor makes decisions on behalf of a huge pool of investors.

If you are worried about losing your money when you change jobs, you needn’t give it another thought. Your 401k contributions will always end up back in your hands. Recent laws make it even easier and cheaper for people changing jobs to roll their retirement savings into a new account.

With Social Security and other government savings programs heading for financial crisis, the money you put in your 401k may someday be the only thing standing between you and poverty. This alone is a major reason to maximize your contributions to your retirement account. The excellent return rate, savings on taxes, and relative safety make this type of savings a great bet for people who want to plan smart for a great future.