What is a 401(k) Plan and How Does It Work?
A 401(k) plan is a retirement savings account that allows employees to save for their future while benefiting from tax advantages. These funds are invested in a selection of options such as mutual funds, stocks or bonds, providing potential for growth over time.
The Benefits of Contributing to a 401(k): Tax Savings and Beyond
Contributions to a 401(k) plan are deducted directly from your paycheck, making it an effortless way to save. One of the primary benefits of a 401(k) plan is the tax advantage it offers. Traditional 401(k) contributions are made pre-tax, reducing your taxable income for the year. This can lead to significant savings at tax time. Additionally, the money in your account grows tax-deferred, meaning you won’t pay taxes on the gains until you withdraw funds in retirement. Deferrals made as Roth contributions are made after taxes, which means the contributions are tax-free when distributed and the earnings may also be tax-free if certain criteria are met. A 401(k) plan is a way to save for retirement. The funds in a 401(k) account can be invested in a variety of mutual funds offered under the 401(k) plan, allowing your savings to potentially grow with compounding interest. Over time, compounding can help your retirement savings increase.
Roth vs. Traditional 401(k): Which is Right for You?
When choosing between Roth and traditional 401(k) contributions, it’s essential to consider your current tax situation and future expectations. Because Roth 401(k) contributions are made with after-tax dollars, this option may be ideal for those who anticipate being in a higher tax bracket during retirement. Conversely, traditional 401(k) contributions may be better for those who want immediate tax savings and expect a lower tax rate in the future.
For more information click here.
How to Get Started with Your 401(k): A Step-by-Step Guide
- Check Your Eligibility: Eligible employees aged 18 or older are eligible to participate in the Allied Universal 401(k) Plan on the first day of the month following 60 days of employment.
- Understand the Details: Review the plan’s summary to understand contribution limits and investment options.
- Set a Contribution Rate: Decide how much of your paycheck to allocate.
- Choose Your Investments: Select a mix of investments that align with your risk tolerance and retirement timeline.
- Automate and Monitor: Once enrolled, your contributions will be automatically deducted from your paycheck until you stop them. You can also set up a feature to automatically increase your deduction percentage annually. Remember to periodically review your account to ensure it aligns with your goals.
By understanding your 401(k) plan and taking full advantage of its benefits, you can pave the way for a secure and fulfilling retirement. Start today and invest in your future! For more information about the Allied Universal 401(k) Plan, visit www.empowermyretirement.com or www.allieduniversalbenefits.com. You can also speak with an Empower retirement customer service representative at 844-465-4455.