401(k) Plans

If your employer is like most, they’ll match the contributions you make to your 401(k) account. The result: free money for your retirement nest egg.

New Age retirement savings

As traditional pension plans fade from the landscape, retirement plans that individuals fund and direct have emerged as the new retirement reality.

Among the most common are 401(k) plans for employees of private companies.

How a 401(k) plan works

Sign up. If you already have a pension plan, great. But companies can discontinue their plans at any time, so it's important to take care of yourself. Opening a 401(k) account through your employer may help you better reach your retirement savings goal.

Instant investing. Your contributions are deducted right from your paycheck and go directly into your account before taxes are taken out –– so you may barely miss the money. Use our Paycheck Impact tool to see how little it actually costs to contribute.

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 the plan. Learn more about the advantages of maximizing your match.

Go for the max. Take advantage of the match 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. By contributing 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 able to buy 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 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 401(k). Talk to your investment professional about the best investment strategy to help you reach your retirement goals.

Know the penalties. Since 401(k)s 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

If your employer doesn’t offer a 401(k) plan, ask your investment professional about other ways you start investing for retirement.

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