401k Retirement Planning Features

401k retirement planning allows you to place funds into a retirement account to capture two main benefits: tax savings and company assistance.  A failure to plan for retirement using this type of account, or its equivalent independent options, will mean missing these benefits.

Company Matching

If your company offers a 401k plan, it likely matches your contributions up to a certain percentage. This is part of your complete benefit package with your employer. Whenever possible, you should contribute the maximum amount of the match. For example, if your company matches up to 3 percent of your paycheck, you should aim to contribute at least 3 percent. This effectively raises your salary by 3 percent, plus interest earned on the account, each year.

Tax Savings

A traditional 401k allows for pre-tax contributions. This means the funds you contribute will be deducted from your annual income to determine your tax liability. Further, the funds can grow tax-deferred until they are withdrawn. Only at that point will you owe the taxes due on the income. This benefit is in place to encourage retirement savings among individuals who may otherwise be short-sighted. The incentives work because they are practical, and you can capitalize on these incentives through proper planning.