So, one good answer to “How much I should have in my 401k?” is at least enough to get the employer match. This is an excellent psychological trick to keep you investing.Ĭheck out the graph below that illustrates why you should always invest in your 401k: Your 401k contribution is deducted from your paycheck the same way that your federal income tax or health insurance premium is deducted. With a 401k, your money is taken from your paycheck and invested automatically, which means you don’t have to go into a brokerage account to invest each month.
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It adds up.īonus: Ready to ditch debt, save money, and build real wealth? Download our FREE Ultimate Guide to Personal Finance. Plus, if you don’t invest in a 401k with employee matching, you are missing out on all the returns that free money will generate.
It is FREE MONEY and you are leaving it on the table if you don’t take advantage of the employer match. It’s free money! Not basically free, “like” free, or practically free. Now, if you earn $100,000/year and invest 5% of your annual salary ($5,000), your company would match you $5,000 - That doubles your investment without costing you a cent. To put that in perspective, let’s say your company offers 5% matching. In many cases, they will match their employee contributions 1:1. Most companies offering a 401k will match you up to a certain percentage of your paycheck. With careful planning (definitely talk to your accountant for this one) you can minimize your tax burden (win-win) Employer match In comparison, if that money was invested in a normal investment account instead, a portion of it goes towards income tax.Īlso, you have some control over how much you withdraw. This means you have much more money to invest for compound growth. The money you contribute to a 401k isn’t taxed until you withdraw it, which you can’t do without penalty until you reach 59 ½. Here is a snapshot of the benefits of having a 401k: Tax benefits While you will have to pay a penalty if you touch your 401k savings before you reach retirement age, the benefits far outweigh the risk.
It happens automatically so you don’t have to do anything special and there are a ton of benefits.Ī 401k is called a “retirement” account because it gives you huge tax advantages if you don’t touch your money until you reach the minimum retirement age of 59 1/2 years. With each pay period, you put a portion of your paycheck into the account. What is a 401k?Ī 401k is a powerful type of retirement account that many companies offer to their employees as a perk. What if you could use your money to create a life you love? Learn how with the Rich Life System.
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