What’s the BIG deal about a 401K? Think Free Money!

Posted November 18, 2008 by Bernz

Think of a 401K as a sign on bonus that comes with a job offer because if your employee benefits include a 401K plan that is essentially what you’re getting.

20071213_401k_18A 401K is a retirement investment account funded by money that comes directly from your pay check. In other words these funds are automatically deducted from your pay check and they are not taxed. After the money is entered into your 401K it can then be allocated to different types of other investments such as: bonds, stocks, mutual or money market funds.

Many employers offer to match your 401K contribution. This is where the bonus part comes in. Let’s say you contribute $75 a month to your 401K and your employer matches your contribution dollar for dollar, you’ve earned another $75. An even better part of the deal is that as long as your money stays put, it draws interest. That’s additional earnings on top of your savings. And yes, the interest earned is not taxed. Other advantages of contributing to a 401K plan include:

  • Lowering your income tax bill because the money you contribute to your 401K is not counted as income.
  • If you change jobs, you can take your 401K funds with you and place them into another employer tax-deferred savings plan
  • If you have a financial emergency you can withdraw cash from your 401K fund
  • Because the money is automatically deducted from your account you won’t miss it, which in turns means you won’t spend it.
  • You won’t have to work all your life because at retirement age you’ll have the income you need to enjoy your retirement years.

A 401K plan is an easy, solid way to build a healthy retirement nest egg. That’s a very big deal that you’ll want to take advantage of.


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