A 401(k) is one of the best ways to build your nest egg for retirement. Employees who sign up can have a portion of each paycheck automatically withdrawn and invested. Some employers even offer to match your contributions up to a certain amount. If you aren’t currently enrolled in your employer’s 401(k) plan, here are some reasons to reconsider.
Saving is simple
The key to saving enough money for retirement is to start early and be consistent. When you enroll in a 401(k) you just tell your employer what percentage or dollar amount you want deducted from your pay and you’re done. There’s no check to write, no saving what’s left over and no making excuses. You’ll be saving money each pay period without even thinking about it. If you decide to change jobs in the future, you can always take the money with you.
Many companies offer to match your contributions
To encourage more workers to save for retirement, many employers offer to match a portion of your contributions. The most common match is 50 cents on the dollar, up to 6% of an employee’s salary. It’s highly recommended that you contribute enough to receive the full match. It’s free money so get every penny you can.
You’ll get two tax breaks
Contributing to a 401(k) comes with tax benefits. For starters, your taxable income will be lower because your contributions are made with pre-tax dollars. As a result, you may pay less in taxes when you file your annual income tax return. Another benefit is that your earnings are tax-deferred until you choose to withdraw it. By the time you retire, odds are you’ll be in a lower tax bracket than you are now, which means you’ll pay less in taxes.
You can save a lot more than you would with an IRA
With an IRA, the maximum you can contribute to the account for 2023 is $6,500 ($7,500 if you’re at least 50 years old). The contribution limit for a 401(k) is more than 3 times that amount. You can save up to $22,500 ($30,000 if you’re age 50 and up).
