A common employee benefit is the 401(k) retirement plan. Usually they match your salaried contribution and those contributions are tax-deferred. You should totally sign up for it, right? Maybe….
401(k)s aren’t one-size-fits-all and there may be better options for your specific needs.
Here’s Five Fast Facts About 401(k)s:
- ✋ Not Required - If your employer doesn’t offer a 401(k), realize there is no law requiring it. So your decision might be a little easier.
- 🛑 Rated R - One of the main drawbacks of a 401(k) is the restrictions. There are caps on contributions and the IRS regulates the allowed percentage of contributions.
- 🧾 Bracket Bump - Then we have taxes. While your 401(k) contributions are tax deferred, once you retire and start using it, that distribution is added to your yearly income. You’ll be taxed at your current income tax rate!
- 🪙 Fee-Fee? - Finally we have the fees. A typical plan has at least a dozen fees on them you don’t know about until you start withdrawing it. Apparently they think they’re Ticketmaster or something.
- 🧠 Choices - There are plenty of other investment options for you that aren’t tied to your employer: traditional or Roth IRAs, brokerage accounts, a SEP IRA, or even a private 401(k) of your own! All of these options give you better control over investments and withdrawals. Most of them have better tax benefits, too!
🔥Bottom line: Don’t panic. If you’re enrolled in a 401(k), it’s beneficial, depending on your retirement goals. I can’t help you with that last part, because I’m not a financial expert and I’m pretty sure my neighbor is secretly a lizard person, so it’s up to you. Talk to an actual professional and get to saving. You’ll be old before you know it.
Do you have a 401(k)?
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