One investment strategy to check out is the 401(k) plan. These plans are set up by employers and funded by employee contributions. Here’s a rundown of the benefits of the 401(k) retirement plan:
Tax deferral
Employees can elect to have a portion of their salaries deposited in a 401(k) account. The contribution from their paycheck is made before taxes are withheld, and some companies will even match their employees’ contributions up to a certain percentage. The earnings in a 401(k) accrue and can be tax-deferred until withdrawal.
Investment flexibility
Investing in a 401(k) plan is a financially savvy decision. You choose what percentage of your earnings you want to contribute, up to a certain amount. If your company chooses to match a portion of your contributions, you benefit by earning extra money. You may also have the option to borrow against your 401(k) plan, which can be helpful for major purchases or in the case of an emergency. While you are only allowed to borrow up to a certain amount, and you’ll be expected to repay it, a 401(k) plan can be a good cushion to fall back on should the need arise.
Risk tolerance
Something to keep in mind when you are looking into a 401(k) plan is that you are in charge of your investments within the account. That means it’s up to you to determine the types of investments and how much risk you can tolerate. To help make these decisions, you should familiarize yourself with different high and low-risk investment strategies and determine what’s right for you.
Rolling it over
You should also know your options for keeping or rolling over a 401(k) plan. If you’re happy with your 401(k) plan and leave your company for whatever reason, you may want to consider taking it with you. If not, you can choose to roll the money over into an IRA (Individual Retirement Account). In either case, it’s wise to consult a professional financial advisor in order to make sure you avoid paying unnecessary taxes and fees.
Related Articles