401K Contributions
Happy St. Patrick’s Day! If the luck of the Irish leads you to a pot o’ gold, congratulations! But if not, you are going to need to save money for the future!
One of the best ways to save money is in a 401K plan. Let’s discuss briefly the reasons for putting your hard earned money into a 401K.
1. The biggest reason to save in a 401K is that your employer will usually match your contribution up to a certain amount. Can anyone say FREE MONEY?! Some employers match your contributions 100%, while others do 50% or 10%. Find out what your employer’s policy is! Also, there are limits to how much you can invest into your 401K. For 2006, you are not allowed to invest more than $15,000 per year in your 401K. This limit is set by the IRA. Some employers may also have limits to how much they will let you contribute, such as 10% of your income, so keep that in mind.
2. Contributions to your 401K are automatically deducted from your paycheck, so you don’t have to remember to pay another bill each month. It doesn’t get much easier than this! This also means that you aren’t tempted to spend the money on new clothes instead of investing it.
3. Contributing to your 401K lowers your taxable income. This is a nice break on taxes for the present time, but keep in mind that you do have to pay taxes when you close the account and take out the money.
4. You decide where to invest your money when you sign up. There are many different plans that you can choose from. You can play it safe or take high risks; it’s really up to you.
5. You earn more interest on your money than you would in a regular savings account. For example, if you put $100 each month into your 401K over 20 years, with an employer match of only 50% you will still have about $180,000. Compare this to the $40,000 you would have if you put that same money into a savings account.
Can you see why it is critical that you take advantage of your 401K plan? Begin now, and let the money accumulate! I can almost see that retirement in the Caribbean…..
401K, personal finance, Personal Finance, retirement, savings, st patricks day 401K, personal finance, Personal Finance, retirement, savings, st patricks day
May 16th, 2006 at 12:03 pm
if you withdraw money from a 401k plan, how much taxes do you have to pay?
http://www.moneysavingfreetips.com/401k-max-contributions.html
it says here
The earlier you start maxing out your 401k plan, the more money you will have in your retirement age. Infact, if you face financial difficulties in your mid-age, you can withdraw some money from your 401k plan (this withdrawal is subject to local state taxes).
January 9th, 2007 at 6:21 pm
how do you file your 401k on your income taxes if you have taken it all out and federal taxes has already been taken out. do you just add it to income under pension?