Making the Most Out of a 401k Retirement Plan

401kWith the cost of living going up, medical expenses on the rise, and humans living longer than ever, planning for retirement should be started as early as possible. Those that get a head start on their retirement will often find themselves in a much better position when it comes time to say goodbye to their company and enjoy their “golden years.” For those that are currently being offered a retirement 401k plan by their current employer, it is important to understand the unique 401k benefits that they may experience and how to make the most out of these retirement funds.

While there are countless minor details that will affect one’s 401k or any other form of retirement fund, there are a few key features that make a 401k plan unique. Essentially, a 401k contribution is counted as a pre-tax investment. This means that all money that is placed into one of these plans will not be subject to income tax as long as the fund remains active. Depending on the amount of money an individual makes, which tax bracket they are in, the state they reside in, and how many write-offs they claim every year, this type of policy could save them huge amounts of money over the years.

There are a number of other key 401k benefits, beginning with the previously listed advantage of a pre-tax contribution. These funds are also generally matched by the employer meaning that employees are essentially saving twice the money. Many investors will also enjoy the flexibility of these policies due to the ability to transition into other policies or even opt out for reasons of financial hardship. Investors are also given flexibility when it comes to the amount that they would like to invest, generally only regulated by a maximum percentage of their overall pay.

For those that have decided 401k plans are the correct choice for their own needs, there are a few important points to consider in order to ensure that this money remains viable and grows in size. When leaving a company, it is important to not cash out a 401k policy as there will be an immediate tax of up to 10 percent or more. When possible, investors may also want to consider rolling their 401k over into an IRA, or individual retirement account, so that the money remains tax deferred throughout the years and well into their retirement.

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