The Importance of a Good 401k

If you have the option of a participating in a 401k at your place of employment, I beg you to make this choice of taking part or not a no brainer and just going for it and putting a percentage of your pay into it every two weeks, or however often you happen to get a paycheck. What most people don’t realize is that they are missing out on a great opportunity to make excellent money in a shorter period of time because most of the time companies will match you up to a certain percent by putting in some of their own money to match yours, so you have an even greater benefit, and build up your funds even faster than if you did not have the company match.

Company matches are a great thing. It’s free money, and if you give that up, then you are truly throwing money away and there’s no excuse for that – ever! If you’re concerned about the current market volatility, most 401k accounts will offer a very low risk option. For example, my 401k is through Fidelity, and they offer a money market account as one of their deposit options, where your money is automatically put into a money market account instead of a higher risk mutual fund or stocks of some sort.

Money markets are pretty much guaranteed, but they offer a very low yield, which is why usually people who are close to retirement choose them, since they are no longer worried about growth, but rather have already attained all their growth and are instead worried about sustainability of their capital as well as stability of income, not a high return any more.

Another huge benefit to 401k accounts is that they give you a tax break. Your taxable income is reduced by as much as you contribute. So say if you decide to contribute ten percent of your total income every pay, your taxable income is reduced by that much, reducing your overall tax liability by that much more, which is something we could all use – a tax break!

Of course, if you think your tax bracket will be significantly higher at retirement, than you might instead choose an option where you can pay those taxes now and instead lower your future tax liability for when you are forecasting a much higher tax bracket for yourself or you and your spouse. I suppose it all depends on what you are expecting for your future, and how you think you’ll fare in you job or livelihood in the future as to whether your taxes will be lower now or in the future.