3 Strong Reasons Why You Should Invest in Your 401(k)
401(k) retirement plans are popular investment
vehicles for people that are employed. Employees can utilize employer sponsored
401(k) plans in order to invest regular amounts of their income into mutual
funds, stocks, or bonds.
401(k) plans are straightforward investment
structures for people who want to put money toward their retirement while they
desire little involvement with investment decisions at the same time.
Essentials of a 401(k)
In a nutshell, 401(k) retirement plans offer employees the opportunity to invest a part of their monthly income in a mutual fund or stock (including company stock) and benefit from a payroll tax deduction in return.
In a nutshell, 401(k) retirement plans offer employees the opportunity to invest a part of their monthly income in a mutual fund or stock (including company stock) and benefit from a payroll tax deduction in return.
Retirement savings contributions are not taxed
at the time of contribution, which is a major benefit of a 401(k), but they
will be taxed later on when funds are distributed.
401(k) plans are classified as
defined-contribution plans meaning employees absorb the risk of their
investments and their employer does not make a guarantee with respect to future
pension payments.
Many employers, however, offer a 'matching
contribution' which means that they will match any employee contributions,
though this will likely be capped at some percentage of the employee's
compensation.
Employees can usually
withdraw their funds when employment ends and they enter retirement, when they
reach the age of 59.5 years or the plan is terminated. Many 401(k) plans also
include hardship conditions under which participants may access their 401(k)
assets in times of extraordinary need.
If you like to read up
on 401(k) plans, consider the ‘resource guide’ from the Internal Revenue Service which has a bunch of helpful
information and clarifies any further questions you might have.
Put simply: You are not required to pay taxes
on your contributions now and you might get your employer to chip in via
matching contributions. Sounds like a sweet deal.
Further advantages of utilizing the 401(k)
route for retirement saving are presented below and employees are advised to
take full advantage of this investment vehicle to build up their nest egg:
1. Compounding leads to higher
capital returns
The biggest advantage a 401(k) offers is the feature of compounding.
The biggest advantage a 401(k) offers is the feature of compounding.
This has profound
implications for investors as their investment returns are not taxed during the life of the 401(k): Not
having to pay taxes on investment returns translates into a higher asset base
that continues to earn more money for the future retiree over time. This
compounding effect works to the benefit of the investor and can lead to a
portfolio that can accumulate quite substantially over long periods of time.
Employees should
proactively talk to their employers and seek out their 401(k) offers. The
maximum amount of compensation in 2014 that employees can defer stands at
$17,500.
2. Structured approach to retirement
planning
401(k) plans are a great concept to lend structure to your retirement planning. First of all, contributions to your plan will be made automatically and on a regular basis.
401(k) plans are a great concept to lend structure to your retirement planning. First of all, contributions to your plan will be made automatically and on a regular basis.
Secondly, employees and investors might find
it a daunting task to decide what stocks or asset classes to invest in and at
what times. Utilizing a 401(k) puts retirement planning on autopilot as
investment decisions will no longer be a cause of worry for you.
3. Smoothing out volatility
Another convincing reason to invest in a 401(k) relates to smoothing out market volatility.
Another convincing reason to invest in a 401(k) relates to smoothing out market volatility.
At any particular time, the stock market could
tank and with it the value of your 401(k). If you make regular contributions
via such a plan you will continue to make investments in stocks and mutual
funds when their values are consolidating in a recession and are therefore
cheap.
If you participate in
your 401(k) retirement plan over many years, the inherent fluctuations of the
stock market as well as the fluctuations in economic activity will balance out
and work to your benefit.
The Bottom Line
401(k) retirement plans are great investment vehicles for employees who desire a structured, low-maintenance approach to retirement planning.
The Bottom Line
401(k) retirement plans are great investment vehicles for employees who desire a structured, low-maintenance approach to retirement planning.
Understand that the
major benefit of a 401(k) lies in offering you the benefit of compounding,
which allows you to earn substantially higher returns over long periods of time.
How to get even more income during
retirement
Social Security plays a key role in your financial security, but it's not the only way to boost your retirement income. In our brand-new free report, our retirement experts give their insight on a simple strategy to take advantage of, that can help ensure a more comfortable retirement for you and your family.
Social Security plays a key role in your financial security, but it's not the only way to boost your retirement income. In our brand-new free report, our retirement experts give their insight on a simple strategy to take advantage of, that can help ensure a more comfortable retirement for you and your family.
vsperos@scaaz.com
#LifeInsurancePhoenix #RetirementStrategiesPhoenix
http://www.scaaz.com/
http://1lifeandretirementstrategies.blogspot.com/
https://www.linkedin.com/pub/vasilios-%22voss%22-speros/60/722/67b
85254
#LifeInsurancePhoenix #RetirementStrategiesPhoenix
http://www.scaaz.com/
http://1lifeandretirementstrategies.blogspot.com/
https://www.linkedin.com/pub/vasilios-%22voss%22-speros/60/722/67b
85254
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