Participating in an employer’s 401k plan is a good way to put aside money for your retirement.
These four tips will show you how to take full advantage of the benefits of saving for retirement with a 401k plan.
Put aside some money every single pay period for your retirement, whatever you can manage, even if it’s just 2% or 3% of your pre-tax salary.
If your employer matches all or a portion of your contribution, that’s even better. Some employers will do a full match of your contributions up to a certain dollar amount and others will match a portion of what you’re putting in. For example, instead of just 3% of each paycheck going into your 401k, your employer could double that amount with a full match.
Do the math or you may be leaving free money on the table.
2. Benefit From the Tax Advantages
Contributions to a 401k plan use pre-tax dollars. So funding your retirement with a 401k plan will help to lower your taxable income and reduce your tax bill. And depending on your income, you may be eligible for a retirement savings contributions credit by participating in a 401k plan.
3. Keep Your Hands Off the Money
Borrowing or withdrawing money from a 401k plan before you reach retirement age carries stiff penalties. Keep the money tucked away for retirement and watch it grow and accumulate over the years.
4. Pay Down Debt and Plan for Retirement
If you are trying to pay off a mountain of debt, it is tempting to put all your extra money toward paying down student loans, credit cards, and other debts and to neglect your retirement plans. By all means, focus on paying down high-interest debt, but at the very least contribute enough in your employer’s 401k plan to receive an employer’s free and matching contribution. And when your debt levels lower, you can contribute more and more to your retirement plan. You can see how your debt is affecting your credit scores for free every month on Credit.com.