401k Retirement Plans
If your employer is like most, they’ll match the contributions you make to your 401k account. The result is free money for your retirement plan.
Retirement plans
As traditional pension plans fade from the landscape, retirement savings accounts that individuals fund and direct for themselves have emerged as the new retirement reality.
Among the most common are 401k plans for employees of private companies. Other plans include:
52% of American workers have saved less than $55,000 for retirement
U.S. Department of Labor, Pension Benefit Guaranty Corp.
-
403b retirement plan for
teachers, churches, public hospitals and nonprofit organizations
- 457 retirement plan for state or local government employees
Get the most from your 401k retirement plan
Sign up. If you already have a pension plan, great. But companies can discontinue their pension plans at any time, so it's important to take care of yourself. Opening a 401k retirement account through your employer may help you better reach your retirement savings goal.
Invest automatically. Your contributions are deducted right from your paycheck and go directly into your account before taxes are withheld –– so you may barely miss the money. Use our paycheck impact tool to see how little contributions impact your take-home pay.
Go for the match. Your company may match a certain percentage of the money you put into your account –– most do. That’s free money for participating in your retirement plan. Learn more about the advantages of maximizing your company's match.
Go for the max. Take full advantage of the tax-deferral by contributing the maximum amount allowed by your company. Check with your human resources department for limits and details. Please keep in mind that all investing involves market risk, including the possible loss of principal.
Get more bang for your buck. If you contribute the same amount of money regularly, you’re using an investment strategy called “dollar cost averaging.” This method averages out the price you pay for the investments in your account, so you’re buying more when the price is lower and less when the price is higher –– giving you better buying power. See how dollar cost averaging can work for you.
Although dollar cost averaging is a good method for long-term investing without having to navigate market fluctuations, you aren't guaranteed a profit or protected from loss in a declining market.
Cut your taxes. Remember that your retirement plan contributions are tax-deferred, which means you don’t pay taxes on the money in your account until you take it out –– usually, when you’re retired and possibly in a lower tax bracket.
Make good choices. You decide how your money is invested inside your 401k. Talk to your investment professional about the best investment strategy to help you reach your retirement goals.
Know the penalties. Since 401ks are designed to help you save for retirement, there are stiff penalties for taking your money out early. You’ll owe income taxes on the total amount and, if you're younger than 59½, also may owe a 10% early-withdrawal penalty. Plus, the IRS requires your employer to withhold 20% of your account value to pre-pay at least part of the taxes you’ll owe.
Taking the next step to your 401k retirement plan
If your employer doesn’t offer a 401k retirement plan, ask your investment professional about other ways you start investing for retirement.
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