Benefits of investing in a workplace 401(k)

Written by Chelsea Grzegorczyk

Saving for retirement may not always seem pressing, but it’s crucial to think of the future and plan ahead. One of the best (and easiest!) ways to save for retirement is through a workplace 401(k). If your employer offers this benefit but you’re not quite ready to invest, have no fear! Check out our top benefits of investing in a workplace 401(k), and get saving in no time.

Take it with you throughout your career

Don’t plan to stay with the same employer until retirement? No problem! Most 401(k) plans can be transferred from one employer to another, so you can continue to grow your investment even if you switch jobs. If you do make a career change, learn about your new employer’s eligibility guidelines, as new hires may need to wait a period of time until they can make 401(k) contributions.

Match funds may be available

Many employers who offer a 401(k) plan also set aside match funds for plan participants. This will vary from one employer to another, but can help boost your investment so more money is available at retirement. To maximize savings, be sure to contribute at least the value of the employer match. In any 401(k) plan, be aware of the vesting period, or the time until employer-match funds are owned by the employee. The money you contribute toward a 401(k) will always be 100% yours, but employers can choose when their matching contributions belong to the employee.

Consistent and automatic savings

One of the hardest parts of saving is remembering to set money aside, but a 401(k) makes investing easy. Simply set your contribution parameters, for example 2% of each paycheck, and watch your savings grow. Investing this way not only ensures consistent contributions, but helps prioritize saving by taking money out of your paycheck before it reaches your bank account.

Also, 401(k) plans often have a much higher interest rate than a traditional savings account, allowing you to turn small contributions into meaningful gains over time.

Multiple options for taxes

Depending on the type of plan, you can reduce taxable income and liability – either in the year you make the contributions, or the year you withdraw funds. A traditional 401(k) involves pre-tax contributions, allowing you to defer paying taxes until you withdraw funds. This reduces your taxable income in the year you invest, and can even help bump you into a lower tax bracket and reduce tax liability. A Roth, however, allows you to apply taxes at the time of investment, and then withdraw funds tax-free in retirement. This is great for those who expect their tax liability to increase in the future.

Whether you picture yourself traveling the world or spending time close to home, we hope these tips help your retirement dreams come true.

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2 thoughts on “Benefits of investing in a workplace 401(k)

  1. Hee Moats says:

    Great post thank you for sharing.

  2. Raisa Delima says:

    It’s good to know that some companies will set aside match plans so that it is easier for employees to build up savings for retirement. I’m glad you said that this varies depending on the employer, though. I bet a professional consultant would be able to help me know what kind of benefits I could receive and how I could build up those savings starting at a young age. Maybe there is a professional in my area that could really lay everything out for me.

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