What you may know about 401 (k) may surprise you. A 401 (k) is an important way for you to save money for retirement. Some of the things that you may know about this type of retirement savings is that a certain amount of your money is deposited into an investment account and that is about it.
There is so much more to a 401 (k) retirement account. If you don’t know the facts about the account, then you are missing out on so much that it can do for you to plan for your future.
Here are some things about your 401 (k) that you may not even realize you can do and should do before doing a loan shop.
- Your place of employment is not required to offer a 401 (k) account. Most companies that do offer the account do so to attract employees.
- Your employer may offer a matching program to help you maximize your benefits. Many companies will match up to two to five percent of your contributions with a cap of about $500 to $1000.
- Contributions can be deducted from your pay checks on a regular basis. This option helps you budget for retirement by taking the money out before you are ever paid. You really don’t even miss the money since it is taken before you cash your check.
- Choose your percentage to invest. You get to pick how much of your paycheck is put into the 401 (k) account.
- Do not let the investment stay in the default account with your employer. This is the part where you take an active role in investing your money. You will want to choose investment portfolios that have a high return rate. An investment advisor can help you make the best choices for your money.
- Try not to use the money. These types of retirement plans let you borrow against the principle in case you have an emergency need in the future. There are penalties for not paying it all back such as the 10 percent tax penalty that you will pay the IRS at tax time. There is even the future loss of potential gains should the market rise.
It is unlikely that you will stay at a particular company for more than 20 years.
Here are some things that you will want to know about 401k accounts should you ever leave the company for a new job.
- Do not leave the account with the employer. You will want to rollover the account to another type of investment option. This will help you avoid tax penalties and keep your money growing.
- Start saving with your new company right away. The same benefits will be with your new employer that you had with your old company in regard to the 401 (k) option. There might be a few minor details that are different but you will want to start saving as soon as you can.
- Do not cash out your current plan. There is a temptation to cash out an old plan with the hopes of investing it later. In most cases people end up spending the money and losing it altogether, and they end up paying heavy taxes on the money. This nullifies any gains they would have realized because they had to pay a penalty tax.
A 401 (k) account is a perfect way to help you start saving money for later in life. There are many rules and benefits that you will want to know before setting up this type of account.
Once you have the account set up and growing you will want to increase your contributions each time you get a raise. The more you know about 401k accounts the better you can save for your future.
John Scalzi writes books, which, considering where you’re reading this, makes perfect sense. He’s best known for writing science fiction, including the New York Times bestseller Redshirts, which won the Hugo Award for Best Novel. He also writes non-fiction, on subjects ranging from personal finance to astronomy to film, was the Creative Consultant for the Stargate: Universe television series. He enjoys pie, as should all right thinking people. You can get to his blog by typing the word “Whatever” into Google. No, seriously, try it.