Everyone knows they need a 401k. It’s something that helps you retire, right? While a 401(k) itself is simple to understand, what are the real benefits? What does it really do for you to help you retire? Today, we’ll explore how a 401k can best help your financial independence, creating financial stability.
Advantages of a 401k
Higher Tax Relief
Since your contributions to your 401k come straight out of your paycheck, you reduce the amount of taxable income you have. This comes with a wealth of savings in itself and could even lower the tax bracket you’re in. Of course, the dollars outside of the tax bracket you’re in are the only ones that are taxed in that second rate, so the difference is minimal in the short term. But, it makes a huge change in the bigger picture.
Keep the Keys in Your Hands
Everyone wants control over their money, and 401k plans allow that. You don’t have to hit a massive contribution number every time, and can range anywhere you’d like monthly, as long as it stays over the minimum. These can be amended around your financial situation, crisis events, and anything that may be impacting your life.
Building for the Future
This isn’t tied to any role, occupation, or organization. It’s just you. Your benefits go with you everywhere, and you build yourself up for a bright, relaxing future.
The major difference here from the other two is that your contributions end up being made with pretax dollars. These are limited at a similar range to what Roth 401ks are limited to contribution-wise, and withdrawals will be affected by income taxes. In short, this is a fantastic option if you’re in a great space financially and are looking to grow for the long haul. You keep your money at its maximum value as contributions are optimized to be used more so for safekeeping rather than pulling large withdrawals when necessary.
Roth 401(k) vs Roth IRA
These are both viable to keep you safe financially for the long haul. Some of the key points included are that contribution limits hover around 6,000, while withdrawals from these funds are not taxed. However, the contributions made are also set with post-tax dollar values. This means that while you can withdraw money more easily, you don’t necessarily make as much of a return when compared to traditional. Although, this really does depend on the habits of the 401(k) or IRA holder. Between the two, IRAs have no age requirement for distribution, while Roth 401(k)s have to be distributed prior to 72.
Questions about Your 401k?
For any further questions, give us a call today. We provide quick solutions and clarification. We’re looking forward to speaking to you!