Why You Should Be Contributing to a 401K

A 401K plan is a retirement savings plan that is designed to allow a United States worker to save through investments and defer income taxes until the time that the earnings are withdrawn.  401K plans are mainly sponsored by employers.  There may be slight variations to the plans but the essentials of all 401K plans are fairly standard. 

A 401K plan is set up so employees can choose to have a portion of their wages deposited directly into the 401K account.  Many employers elect to match a certain amount of the wages that the employee deposits into the account or offer a profit sharing type of contribution to the account.

The Benefits of a 401K Plan
401K plans offer the opportunity for employees to save for retirement. As an added bonus, many companies offer an employer match, which is often another piece of the employee benefit package. An employee who is working for a company that offers the 401K should take maximum advantage of the opportunity to save for the retirement years by contributing even a small amount to get the employee match. 

Here are just a few of the benefits of having a 401K plan. 
• You will be saving for retirement.
• Take advantage of free money from your employer.
• The money is tax deferred.
• You do not have to remember to make deposits into your account.
• You can change your investments whenever you want.
• You have the opportunity to work with an investor to determine the best plan for your money.

How a 401K Works
Once an employee reaches eligibility to participate in the 401K plan they would work with Human Resources and/or an investment advisor to elect to sign up for the plan.  The employee would decide the portion of their wages that they wish to have deposited into the 401K account.

Some plans offer the opportunity to select from a variety of available investment options.  These investment options may include; stocks, money market accounts, mutual funds, bonds or company stock.  The employee can work with an investor to allocate the money in the 401K account to a variety of different investment opportunities.  Once the employee is enrolled in the account and the investment choices are made the account will begin to make money.  Savings, earnings and losses will be recorded and sent to you in a statement or provided through an online account, depending on how you set up your portfolio.

Start Early
It is never too early to start saving for retirement.  Some plans do have a minimum enrollment age.  If you are working for an employer that provides a 401K plan it is to your advantage to look into this as soon as you become eligible.  Individuals that start retirement funds early can retire with the peace of mind that having retirement savings provides. 

Thinking about retirement can seem so far off or be overwhelming for some. The nice thing about the 401K plan is that you have an adviser that can be a resource to you through the entire process.  If you leave your job or change employers the 401K can be rolled over to your new employer or to a federal bank where the account will continue to make money.  Once you do the one time work to set up the plan it is a low maintenance way to start building your retirement nest egg.