It’s never too early to start planning for retirement. Take control of your future by enrolling in your company’s 401(k) plan, which may help you better reach your retirement savings goals.
Here are a few things to consider as you enroll your plan.
Your contributions are deducted from your paycheck and go directly into your retirement account. It’s automatic and the contributions are made with pre-tax dollars, so you may not even miss the money. Use our paycheck impact tool to see how little impact contributions may have on your take-home pay.
Take the company match
Many companies will match a certain percentage of your contribution to your 401(k). That’s like getting free money just for participating in your retirement plan. Don’t miss out – consider contributing at least enough to get the full match from your company.
Get the tax benefit
With a traditional 401(k) plan, 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. You may be in a lower tax bracket then.
Consider going for the max
Take full advantage of the tax-deferral in a traditional 401(k) by contributing the maximum amount allowed by your company. Check with your employer for limits and details. Please keep in mind that all investing involves market risk, including the possible loss of principal.
Learn about the Roth option
Some companies offer a Roth 401(k) plan, which differs from a traditional 401(k) because it is funded with after-tax dollars. Typically, the earnings on Roth contributions will be tax free if the distribution is made at least 5 years after the first contribution and you are 59½ years old.
Enhance your buying power
If you contribute the same amount of money to your 401(k) 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. 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.
Understand plan fees
There are fees and expenses associated with retirement plans. If you have a retirement plan with Nationwide, you can look up fees for your plan, find a comparison of investment options and review a glossary of investment terms.
Choose your investments
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.
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, you may also 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.