What Every Individual Should Know about 401(k)
Understanding Your 401(k)
Are you concerned about your retirement savings? A 401(k) is a retirement savings program employers offer employees that can provide significant tax advantages for the employee. It's an excellent way to start planning for your retirement.
When you opt-in to a 401(k) plan, you contribute a percentage of each paycheck delivered directly into an investment account. Your employer may also match part or all contributions, which means you save even more for retirement. You can choose from several investment options offered, which may include stocks, bonds, and mutual funds, to determine how your money is invested in the stock market.
Traditional 401(k)
With a Traditional 401(k), your contributions are deducted from your gross income before taxes. This reduces your taxable income and can even lower your taxes owed for the year. So, what does this mean for you?
By contributing to a Traditional 401(k), you're investing in your future and lowering your taxes. And with no taxes owed until you withdraw your money, you have more time to grow your savings.
Roth 401(k)
Unlike a Traditional 401(k), a Roth 401(k) deducts contributions from your after-tax income. This means you won't get a tax deduction for a current year of contribution, but you'll get to withdraw your savings tax-free at retirement, including all the investment earnings or winnings.
What does this mean for you? First, a Roth 401(k) can be a wise choice if you expect to be in a higher tax bracket in retirement or want more flexibility with your withdrawals. Plus, you can enjoy tax-free growth on your investments
The Benefits of a 401(k)
1. Tax advantages
Your contributions to a 401(k) are made with pre-tax dollars, which means you'll pay less in taxes every year. In addition, this means the money in your 401(k) grows until you withdraw it in retirement - completely tax-free.
2. Employer contributions
Many employers match a percentage of their employees' 401(k) contributions. This can significantly boost your retirement savings.
3. Investment options
With a 401(k) plan, you have access to a range of investment options, allowing you to choose how your money is invested and potentially earn higher returns than other savings accounts offered in traditional Banks & Credit Unions
But why should you consider a 401(k) plan? If you want to learn more about how a 401(k) can benefit your retirement savings, we invite you to schedule a preliminary consultation with one of our retirement planning specialists.
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