401K Accounts, an Easy Way to Save for Your Retirement
Retirement 401K Accounts: When you sign an employment contract with a medium or large company do not lose the papers in which you are explained and completed enrollment in the pension plan. The so-called 401K Accounts. What’s more, study it and enter it. The younger you are the better.
Because it is a savings / investment plan that will help you supplement Social Security income when you retire. And above all, because it is one of the most comfortable and easy plans for workers who end up saving almost without realizing it. Without pain.
But let’s go in parts.
The 401K Accounts are savings plans provided by businesses that are nourished by a percentage that you choose from your pre-tax income. There are companies that automatically enroll workers and others make this optional savings.
There is an annual tax limit set by the IRS that this year is $ 17,500. The earnings from investments in these accounts are also tax-free until you use them in your retirement.
What financial advisors say is that it is a small savings that is barely noticed once the paycheck is cashed, especially if you start by deducting a low percentage, a 3%, that you can go up over time. It is recommended that you gradually reach 10% or 15%. Some companies help with contributions. If you change jobs you can take the account with you and integrate it into another 401K Accounts or other savings account.
Some companies offer Roth 401k, where contributions are not tax free, but if the money is when you use it. If you work for the administration, the account will be called 457 and for employees of public schools and charitable organizations, the variant is the 403k.
The plan’s managers help you design the investment strategy (in which you have to take risks in the stock market to different extent, according to your age) with plans already defined although you can also make a different portfolio. In the long run, it is possible that alternates lost with benefits (we will talk about investment in #TuRetiro, December 3).
The money you earn can not be touched until half a year before you turn 60. If you do it earlier, in addition to taxes, you will pay the IRS an additional 10% penalty on the amount you take out.
Some plans allow you to withdraw money without penalty in case of an adversity (a health problem, an embargo …) but it is complicated. If you need the money ahead of time you better ask for a loan on those savings that you do not have to report to the IRS and have lower interest rates than the rest.