You’ve probably heard of a 401k, and you know it has something to do with retirement. So, why should you get one? Here’s what you need to know about the benefits of a 401k.
What Is a 401k?
A 401k plan is a retirement savings account set up by an employer for their employees. If you work for a non-profit organization or the government, you’ll have a 403b instead. Both accounts are named after the sections of the tax code where they appear.
There are two types of 401ks/403bs:
- Traditional – Traditional 401ks allow you to save retirement money tax-free. In other words, if you put away $5,000 this year, the government won’t tax you on that $5,000. So, what’s the catch? You WILL pay taxes when you pull the money out as a retiree.
- Roth – Roth 401ks, on the other hand, tax the money going into but not out of an account. Therefore, as a retiree, you could cash out your savings tax-free. This is a better option for people who anticipate being in a higher tax bracket during retirement.
What Are the Benefits of a 401k?
- Automatic Deductions
With 401(k)s, money from your paycheck goes directly into your retirement fund. This makes saving easy! You don’t have to worry about setting aside and depositing cash each pay period. Your company does it for you. Plus, you decide how much to contribute and where to invest it. Most organizations offer a variety of mutual funds as well as target-date funds.
- Employer Matching
Employer matching is a fantastic benefit and, unfortunately, one people often overlook. Many companies will automatically match your 401k contribution up to a set amount. For example, if you pay $5,000, your employer will also add $5,000. That means you’ve set aside not $5,000 but $10,000 toward retirement. However, if YOU don’t contribute, your employer won’t either. As a result, you’re walking away from free money. Thus, it’s well worth asking about AND maximizing any 401k match.
- Loan Options
If you need a short-term loan, you also can borrow money from your 401k before you retire without interest or taxes. Most accounts allow you to take out either $50,000 or 50% of your savings (whichever is less). Nevertheless, be careful. In some cases, a 401k loan makes sense, but you DO need to repay the money usually within five years. Failure to meet any established requirements could result in additional penalties and fees.
Does Halpin Staffing Services Offer a 401k Account?
Yes. Halpin provides 401k accounts to anyone who has worked at least one year and has 1,000 hours of service. Our automatic payroll deductions make planning for retirement easy!
Are You Looking for More Ways to Save Money?
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