Benefits of a 401(k) Retirement Plan

Benefits of a 401(k) Retirement Plan for Movers

A 401(k) plan has many very compelling benefits. A 410(k) plan reduces your taxable income because contributing to it comes out of your payroll before the government taxes are withheld. Most of the plans have matching contribution for the employer. So not only do you save money on benefits from tax-deferred growth but your money compounds more interest that it would if it were taxed by the year.

An annual pre-tax limit on 401(k) is rising. So far, in 2012, the most contribution is $17,000 and it is $22,500 if your over the age of 50.

Matching the contribution is “free money”. If a person can not afford to maximize their plan, they can at least contribute enough for the matching contribution, which is termed “free money”. The rate for the typical plan is a match of 50 cents per dollar, but up to 6 % of your salary. For example: If you made $10,000 a year, you can put in $600 in, and the plan will match you $600, leaving you with $1,200 a year invested into a retirement plan.

Keep in mind that taking money out of a 401(k) plan is expensive because the loans must be paid back with post-tax money, plus interest rates. For some plans, if you withdraw money before the age of 59 and a half, you will have to pay income taxes and a 10% penalty. This will shrink what you can get out of pocket.