A well-known benefit of a 401(k) plan is that money contributed from your paycheck isn’t taxed as income until you take it out after age 59 ½.
So if you get $40,000 a year after taxes and contribute $5,000 to your 401(k) plan, you’ll only pay taxes on the remaining $35,000 this year. These plans also allow investors to automatically contribute to their retirement through deductions directly from their paychecks. That way, the money is deposited before it reaches your bank account, so you don’t have to think about it — or spend it.
Perhaps the greatest benefit of 401(k) plans is that some full-time employers offer to match employee contributions, at least in part.but Nearly a quarter of employees People who qualify for this free money from their employer don’t set aside enough money to maximize their employer’s contribution.
In December 2022, President Biden signed into law an appropriations bill that included a series of provisions — called the Security 2.0– This will affect retirement savings plans. One of the rules requires employers to automatically enroll workers in new company retirement plans at a rate of no less than 3% starting in 2025.
Take a moment this year to reflect on how your plans came about. If you’re expecting a raise, consider putting some or all of it into your retirement savings. You might not even notice that your regular paycheck isn’t increasing, and you’re setting yourself up for an easier retirement.