Would you say no to free cash?
Imagine how you would feel if you pulled a $20 bill from your wallet, showed it to your boss, and then your boss handed you a matching $20 bill!
That’s how 401(k) Plans work. This type of retirement plan is a special savings and investment account that’s sponsored by your employer. You can contribute money from every paycheck into this account without paying taxes on it. Your employer may match your contributions up to a certain amount. For example, your company might contribute $1 for every $1 you contribute!
Your money is invested into one or more accounts that are offered through your company’s plan. This is a long-term investment. When you’re ready to start contributing money to your retirement this way, talk to your employer and watch the money grow!
Advantages of 401(k)s
- Would you say no to free cash? If you can afford to save, even if it’s just a small amount, your money may get matched by your company’s money. Start saving now!
- If you have medical or education expenses, you can often borrow money from your 401(k) savings to help you pay but you may have to pay taxes on it. You can also use this money to buy a home.
- Money you contribute to this fund is not taxed until retirement so your dollars can go further to help you save.
Disadvantages of 401(k)s
- Not everyone feels that they can put money in their 401(k). It can be hard to balance the money you need for everyday expenses and the money you’re saving for the future.
- If you take money out of your 401(k) before you turn 59½ without paying it back, you will most likely have to pay federal taxes, plus a penalty from the financial institution.
How much can you save?
The total amount of money you can save depends on how much money you deposit into your account each year, when you retire, and how much you receive in interest. This is an example of how much you could save with a little effort:
- Deposit $10 each week for 5 years at 7% interest; you’d have $6,500.
- Deposit $20 each week for 10 years at 5% interest; you’d have $13,000.
- Deposit $40 each week for 20 years at 5% interest, you’d have $68,000.