A 401k is one of the most commonly known retirement plans, being utilized by thousands of people and their respective companies each day. Under this plan employees can make voluntary contributions towards their retirements that are usually matched by their employers for use after they have stopped working. After the employee decides how much money they would like to set aside each pay period, that amount is automatically deducted from every paycheck before taxation, making it tax deferred until it is time for withdrawal. Despite it being a highly popular way to invest in one’s future, there are still some that are skeptical about implementing it into their budget and finances. As a leading accounting firm we at Nazaire & Co. would like to provide you with 3 great reasons why you should invest in your 401k.
Number One: It doesn’t hurt as much as you think it would
You’d be surprised how painless putting money toward something is when you don’t have to physically do anything. Like state and federal taxes, money for your 401k is automatically deducted from your paycheck, meaning you’re not required to take action or meet a specific deadline. Your pockets may seem light at first but as you work your 401k deductions into your weekly and monthly budgets, you’ll notice just how easy investing in your retirement is. Also keep in mind that most times your employer is matching the same amount that you’re putting up, easing the feeling that you’re doing it all by yourself.
Number Two: Social Security won’t be around forever
Social security is slowly being to fade and who knows where it will be in the next 35 to 40 years? Where it was once possible to comfortably live off social security post-retirement, many people find themselves going back to work simply because it is no longer enough to survive. Chances are you will need more than just a social security check to live out your golden years in peace, and that’s where a 401k comes in handy. Properly investing in a 401k plan can potentially provide you with 70 to 90 percent of your post-retirement income, allowing you to retire without ever having to work another day again.
Number Three: 401k plans make for great tax deductions
Not only do 401k plans allow you to save for the future but also in the moment as well. A 401k is 100% tax deductible, meaning that the money accrued is not counted towards your gross income, keeping you out of higher tax brackets. Another great thing about 401k plans is that your money grows tax deferred, contrary to savings and brokerage accounts that have to be reported at the end of the year. This allows your money to increase at a faster rate, with you only being taxed after the money has been withdrawn. Side note: some 401k plans enable you to withdraw money early in case of emergencies like hardship or loans.
Bonus: You can move your 401k into an IRA at any time.
Thinking about leaving your job but want to hold on to your savings? A 401k allows you transfer your current savings into an IRA (Independent savings account) while keeping them tax deferred.
In the end
401k plans were established as a way to help you effectively plan for your future. They help provide security and assurance that you will be taken care of when it’s time for retirement. If you’re curious about how to set up a 401k or other retirement plans that can serve as an alternative, feel free to contact us at (516) 717-1440. Also don’t forget to check out our other tips, tricks, and articles on financial success at nazaire.com/blog