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All about 401(k) plans

Updated: Apr 23

Planning. Many strive to make the best financial decisions that keep them secure for the future and plan ahead. Planning is essential as you never know when you will be in need for money. If you want to do a favor for yourself and start having savings for retirement, then you should consider investing in a 401(k) plan.



What is 401(k) Plan?

A 401(k) plan is offered by an employer for their employees to contribute a certain amount of their income for their retirement savings account. In most cases, the amount the employees input for their account, their employers can match it too. In simple terms, if John decides to contribute 2% of his salary for his account, and his employer wants to match that, so the employer would input 2% as well. John will have a total of 4% of his yearly income in his 401(k) account. Not all companies contribute to their employees' 401(k) account. Some may match exactly what their employees contribute and others have a fixed amount.


3 Essential Benefits of a 401 (k) Plan

There are various benefits for investing in a 401 (k) plan

  1. Feasible process for saving

401(k) plan enables employees to effortlessly earn and save a certain amount for their retirement. If not for this plan, one may be always struggling to allocate a certain portion of their income and not keeping track of how much money they can save for the future. One doesn’t have to constantly remind themself to set aside a certain amount for their savings.



2. No tax


The money an employee contributes to their 401 (k) plan does not count for your overall income that can be taxable. This decreases the total percent of your income that can be considered taxable.


3. Interest Compounding

An efficient way of gaining a huge amount over a long term period. What you put in now, will rapidly grow to a large gain as it’s time for your retirement.


Another type of commonly followed method is the Roth 401(k) Plan.


What is the Roth 401 (k) Plan?

A Roth 401 (k) Plan is similar to a conventional 401 (k) plan

except its provides savings account where employees

contribute a certain portion of their income AFTER paying tax. This plan appeals for a younger crowd as most of them may expect to be paying a high tax rate in their future (near retirement time).


I’ve included only a few of the essential benefits of the 401 (k) plan, but one receives many advantages from this plan. If your employer provides a 401 (k) plan then consider investing it. You are saving money for your future. Starting to plan from today for tomorrow is the best way to stay financially secure even during your retirement!


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