8 reasons to save in a 401(k) and why it matters
Gone are the days of secured retirement as more employers are phasing out of traditional pensions and replacing with the 401(k).1
This retirement savings vehicle is a defined contribution plan where an employee can make contributions from his or her paycheck into one’s own retirement account. It is fast becoming the investment of choice among workers - and for good reason.2
Reasons to save
Take advantage of your employer’s retirement savings opportunities and don’t miss the chance to enjoy these unique benefits to boost your efforts when you choose to save in a 401(k):
- You’re always in control
The choices you make about your contributions and investments are up to you. And most 401(k) plans will allow you to easily make changes anytime in a variety of ways convenient for you.
- Save automatically
Your contributions are automatically deducted from your paycheck, so it’s simple to set a little aside each pay period.
- Help lower your taxable income
Every dollar you contribute before taxes is not only tax-deductible, it’s tax-deferred (you pay taxes when you withdraw your money) thereby reducing your taxable income, which means you may pay less in income taxes today.
- Invest your way
Most 401(k) plans offer a variety of investing solutions to fit your needs. Whether you want to choose your own investments, or would prefer some guidance, there is an option to fit your style. The nice thing about an employer 401(k) is you can start saving with no minimum investment requirements helping you take smaller steps that are more manageable.
- Remember, your money is yours
Subject to your plan rules, the amount you contribute and any related earnings are yours to take with you, even if you change jobs.
- Meet your match – employer contribution
Some employers offer to match a % of your contributions up to a % of your pay. If your plan offers a match, be sure to take advantage of this benefit to help you save even more for retirement.
- Put time on your side
It is never too early or too late to get started. However, you can put time on your side and take advantage of compounded interest. Compounded interest is the addition of interest to your investment contributions. It’s interest on interest and so on, giving you a chance to potentially earn more over time.3
- Protect your assets and the ones you love
Similar to other investments, 401(k) plans allow you to name a beneficiary so you can protect your loved ones. The 401(k) also has a special protection allowing you to shelter your retirement assets from creditors. In general, these funds cannot be garnished except in limited instances such as the collection of IRS tax liens, federal criminal penalties and fines, child support, and court ordered divorce settlements.2
1. US News and World Report, 5 benefits of a 401(k) plan you haven’t considered, Maryalene LaPonsie, September 13, 2018, https://money.usnews.com/money/retirement/401ks/articles/2018-09-13/5-benefits-of-a-401-k-plan-you-havent-considered
2. Investopedia, June 2018, https://www.investopedia.com/ask/answers/090915/can-my-401k-be-seized-or-garnished.asp
3. How to take full advantage of your 401(k), https://money.usnew.com/money/blogs/the-smarter-mutual-fund-investor/2014/02/24/how-to-take-full-advantage-of-your-401-k, Scott Holsopple, February 24, 2014