What is 401(k) and what are its benefits?
The 401(k) is a retirement plan offered by the employer to help you save for retirement. By joining you will make monthly contributions, which will be automatically deducted from your salary and will be exempt from paying federal taxes, until the time the money is withdrawn.
Here are some details you should know about the 401(k) program:
1. Start early
Starting early to save for retirement is extremely important, if you want to be financially stable in the future. If you are one of those who says: “today I can’t, I will start next month” and it passes by delaying the decision to start saving. Remember that the earlier you start saving for retirement, the faster your 401 (k) account funds will grow.
2. Company contribution
Many companies that offer the 401(k) program to their employees offer incentives or contribute a sum of money to match the worker’s contribution. For example, some companies can contribute 75 cents for every dollar the employee contributes to the plan. This is why you should make sure you get the maximum contribution from your employer so that you don’t stop taking advantage of that “free” money.
3. Commission expenses
When you participate in a 401 (k) plan, there are accounting and administration costs that can reduce your savings when you retire. Since these charges can reach 30% of your savings.
4. Minimum age
The minimum age to withdraw money from 401 (k) is 59 and a half years. According to the IRS rules, if you withdraw the savings before you have to pay a 10% penalty, in addition to income taxes.
5. Limit on contributions
You can contribute 401(k) up to $ 18,500 per year or $ 24,500 if you are 50 or older, as long as your contribution does not exceed your income for the year.
On the other hand, if you work for a company that does not offer a retirement plan, you can consider other options such as an IRA or a savings account.