What is a 401K

A 401(k) is a way for people to save for retirement. Not only do they provide their own savings, but most companies will match employee rates up to 3% of his/her salary. Someone who worries about retirement, longevity, future finances or anything else pertaining to the future is perfect for investing in a 401(k) plan.

Tax Exempt

Not only are 401(k) plans great for retirement, but they are also a great way to save without the money having taxes deducted from it. When you have money taken out of your check for a plan, the money is taken out pre-tax. In other words, you are not paying taxes on your savings. Many people look at this as not only a way to save for the future, but also a way to lower their tax rates when it is time to hand Uncle Sam his cut each year.

Company Match

On top of tax benefits, most companies will match up to 3% of your salary. In other words, if you put in $20 per week out of your salary, the company that you work for will also put in $20.This means that you are saving $40 per week towards your retirement. As long as you do not exceed the percentage that the company will match, you will be doubling the amount that you put in every time. If you are not taking the maximum percentage out of each check, you may want to rethink that idea because you are leaving free money sitting on the table.

Early Withdrawal

For a fee, most 401(k) plans can be withdrawn before retirement. If something happens to you or a loved one, you have money saved that can help substitute a check or pay for necessary costs. It is good to look at the 401(k) as a little emergency nest egg, but you have to be careful so that you do not withdraw funds for something unnecessary and not have them available when you truly need them.

Internal Revenue Service

The IRS is a key factor when it comes to planning your 401(k). If you are looking for a tax write-off, you will want to consult with a tax professional and do some of your own research. There are many stipulations when using any plan as a tax exemption, so you need to know your sources are secure and trustworthy. If they find a problem with your exemption, you could be penalized for the inaccuracy. A great place to begin your research is the Wall Street Journal’s article, “What is a 401(k) Plan?”

Any time that you are dealing with your future, it is important to know the facts. Always do your own research before consulting with a professional. If you are knowledgeable about the subject, you are less likely to end up paying for it in the future. With that being said, 401(k) plans are a great way to save for the future, but you need to do so with caution. After doing the research, you will no longer have to ask what is a 401(k) plan is.

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