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Home : Planning Your Finances : Retirement Planning : 401(k) Information
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An employer-sponsored retirement plan is an important, valuable part of your employee benefits package. Just how good a deal is an employer-sponsored retirement plan? Let’s list 10 great things about your 401(k) plan. (Refer to these if you’re ever tempted to leave the plan or if you know a co-worker who isn’t participating.)
1. Lower your current taxes – Taking part in the plan means you are deferring some of your income. And by lowering your taxable income, you save on your current taxes for an immediate benefit.
2. Defer investment growth (keep more money working for you) – When you invest in a tax-deferred account, such as a 401(k) plan, any investment gains you incur each year continue to grow without taxes being taken out. As a result, your investment fully continues working for you, year after year, with the potential to grow faster.
3.Company match = free money – If your company matches some of your contribution, that amounts to free money for you. To earn the bonus, all you did was the right thing for your future. Another way to look at it is getting an instant return on your investment. For example, a 50% company match on your salary deferral is like a 50% return on investment!
4. Help make your golden years golden – Accumulating enough money for your retirement takes a lot of work. But every dollar you defer each pay period brings you closer to your retirement goals.
5. Save pain-free through payroll deduction – Unlike most other investments, you don’t need to keep deciding how much to invest, what to invest in or when to invest once you decide to participate. And you don’t even see the money that gets deferred, so you aren’t tempted to spend it.
6. Save more than ever – In 2006, the maximum contribution level rises to $15,000.
7. Catch up quickly – If you’re age 50 or older, you can make an additional $4,000 annual contribution. If the market downturn of recent years held you back, now is the time to make up for it.
8. You CAN take it with you! – Your 401(k) balance is transferable to other savings vehicles, including a Rollover IRA or a new 401(k) plan, should you change jobs. You definitely don’t need to cash the money out (bad idea, generally) or leave it with your former employer.
9. Borrow money from yourself (but pay it back) – Borrowing from your 401(k) account balance is not something you should consider lightly because it can slow down your progress in saving for your future. But if you have an urgent need and your plan permits loans, why not borrow from yourself rather than a bank? Just make sure you pay it all back before you leave your job or retire.
10. Roll it over when you’re done – When you retire, one of the best ideas is to transfer your retirement account balance to a Rollover IRA. That will enable the money to keep growing tax-deferred, and IRAs tend to have a wider choice of investment options.
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