Do you work for a company that offers employee retirement plans like a 401k? An employee retirement plan offered through your employer is the best place to start building wealth for your retirement goals. Even if you start with a small amount, it moves you one step closer to building wealth and securing your retirement
In addition, a 401k employer sponsored retirement plan has numerous benefits and tax advantages that make it one of the best retirement planning options available to employees. Here is an overview of several of the key benefits of employer sponsored 401k retirement plans.
Pre-Tax Contributions – One of greatest benefits of a 401k retirement plan offered through your employer is the ability to set aside money from every paycheck prior to your payroll tax deductions. This allows you to save a larger portion of your income since you a making a pre-tax contribution. It also lowers your income taxes since your taxable income is reduced by the amount you contribute into an employee retirement account.
Tax- Deferred Growth – You are not required to pay taxes on your retirement account until you pull out the money. Therefore, the money inside a 401k retirement plan will grow substantially faster than an after tax investment account. This tax-deferred growth over 20-30 years can dramatically impact your overall account balance and your ability to retire.
Automatic Payroll Deductions – This is absolutely essential for anyone that wants to achieve their financial goals. You must commit to paying yourself first. The easiest way to make that commitment is to set up a payroll deduction amount or percentage to be deducted from every paycheck. This will ensure you remain committed to your financial goals.
Employer Matching Funds – Employers may offer to match a percentage of the funds an employee contributes to their retirement plan. If so, this is essentially free money contributed to an employees retirement account every month for as long as they work for the company or the policy remains in effect. Over time these matching fund contributions can significantly impact your overall account balance.
In closing, an employer sponsored retirement plan like a 401k is the best place to start building wealth and securing your financial future. The sooner you get started the better. Every year you wait to start contributing money is a year you not only miss out on saving a portion of your income but also lose a year tax deferred growth. Don’t wait until it is too late. Tax deferred growth, combined with compound interest over 20-30 years, is the secret to building a substantial retirement account. Therefore, the sooner you get started, the sooner you can retire.
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