A 401(k) Plan can be a fantastic tool for retirement savings. In
a typical 401(k) Plan, your employer contributes a portion of your
before-tax salary to the Plan, and may also make a matching contribution.
Should you participate
in a 401(k)? Could you do better investing on your own outside of
a 401(k)? Let's consider. First, 401(k) money is contributed on
a before-tax basis. The $1.00 you put in a 401(k) would shrink to
about 70¢, depending on your tax bracket, if you did not put
it in a 401(k). Second, many 401(k)s provide an employer matching
contribution. If your employer match is 25¢ for each $1.00
you contribute, that is equivalent to an immediate 25% return (the
employer match is subject to a vesting schedule, of course). Third,
401(k) contributions are also regular and automatic, happening for
you every paycheck. For many people, this feature alone ensures
that their retirement funds are accumulating in a better manner
than if they had to actively invest the money themselves after cashing
continue to rise, making retirement savings more crucial than ever.
Your grandparents worked and saved 45 years to retire for 5 years;
your parents worked and saved 45 years to retire for 10 years. You
may work and save 45 years to retire for 25 years! Your 401(k) account
could someday be your largest asset, and it should an integral piece
of your retirement planning.