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The “411” on your 401(k) plan

401(k) advice

It’s never too early to start planning for your retirement. And if your company offers a 401(k) plan for this purpose, it’s a golden opportunity for you to save for retirement while you’re still working.

Here are some important 401k tips you should consider:

Invest automatically

401(k) plans are “effortless” in a sense. Your contributions are deducted from your paycheck pre-tax and go directly into your retirement account. Try our paycheck impact tool to see what little effect contributions may have on your take-home pay.

Take the company match

Some companies will match a certain percentage of your contribution to your 401(k). This is almost like getting a free return on what you contribute to the plan. Don’t miss out! Consider contributing at least enough to get the full match from your employer.

Get the tax benefit

In a traditional 401(k) plan, your contributions are tax-deferred. This means you’re not taxed on the money you’ve put in until you take it out – usually, when you’re retired. And by then, you might be in a lower tax bracket.

Consider the maximum contribution

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 remember that all investing involves market risk, including the possible loss of principal.

Explore 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. The earnings on Roth contributions will be tax free if the distribution is made 5 years or more after the January 1 of the first year a Roth contribution is made and the distribution is made on account of death, disability or attainment of age 59½.

Boost 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. It’s a good method for long-term investing without worrying about market fluctuations. But remember, investing involves market risk, including the possible loss of principal. You can always talk to an advisor to learn more.

Understand plan fees

There are fees and expenses associated with retirement plans. If you have a Nationwide retirement plan, you can look up the 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 within your 401(k). Talk to your investment professional about the best investment strategy to help you reach your retirement goals.

Beware of taxes on distributions

Distributions from a 401(k) plan are generally subject to ordinary income taxes and may be subject to an additional 10% early withdrawal tax if the distribution is made prior to age 59½. Unless a distribution is rolled over, the taxable portion of the distribution is subject to mandatory 20% federal withholding.  

Learn more

Learn more about retirement plans or talk with your financial advisor to get started.

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