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Four Things You Need To Know About 401K’s

| April 07, 2017
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Recently, the 401K has been growing in popularity, particularly because of the decline of the traditional pension. Employees, ever-concerned about staying on budget and cutting costs, have started to phase out pensions and replace them with the 401k. Of course, some people still have pensions and they remain fairly common in government jobs. Be that as it may, the 401k is a ubiquitous retirement savings vehicle. Here are four facts that you need to know.

Control
With the 401k, you control your own money. If you want to invest in stocks, you can invest in stocks. If you want to invest in bonds, then you can do that as well. Most people decide to invest in various financial instruments, using a financial adviser to stay on the right track.

Penalties
It is important to remember that a 401k is not a liquid account. Every 401k is different, but there are generally substantial fees for trying to take any money out before retirement.

Matching
Employers typically match part of your contribution to your 401k. They usually match up to a certain percentage of your salary, depending on the employer.

Taxes
A traditional 401k is a tax deferred investment, meaning that you pay taxes on the money after you withdraw it. This is an important point, as after you retire there is a good chance that you will be in a lower tax bracket, and that will allow you to keep more of your money.

The 401k is growing in popularity. Hopefully, this article shines some light on the basics.

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