Don’t Stop Your 401(K) Contributions!
Saving | October 14, 2009 at 1:15 amContributions to the 401(K) retirement savings seem to have reached a low in the present times, owing to the scarcity of money and job layoffs. Insurance savings of all types have seen a low and many companies stopped the 401(K) plan. Ford Motor, Motorola, Eastman Kodak all have stopped their 401(K) retirement benefits to their employees for some time now. When the economy improves you’ll see everything returning to normal. But don’t stop your 401(K) contributions because there are still a lot of benefits by continuing the contributions.
Tax Advantage
401(k) is known for the tax benefits that it offers. Your contributions for the 401(K) will be reduced from your gross income which will automatically lower your taxable income. Keeping this money in your savings or any unqualified account is going to make this taxable. You’ll be charged on the interests and dividends that you get. So isn’t it better that you shift over that money. An IRA deposit does not lower your taxable income. As long as you don’t withdraw money from this account, your income will remain non-taxable.
Dollar Cost Averaging Benefits
The 401(K) contribution will help you in buying more shares at a lower price. Generally when the prices are high you buy less shares and vice versa, but with 401(k) contributions you can buy shares anytime without waiting for favorable market conditions.
Interest Multiplication Benefit
When you make 401(K) contributions you are making your savings multiply by the year. Your premium will accumulate interest and as years go by this accumulated interest will keep multiplying itself. Let’s say, after 10 or 15 years you’ll have a lot of money at your disposal.
401(K) Comes With Higher Contribution Limits than the Conventional IRA
With a 401(K) you can contribute up to $16,500 for a tax deferred account and if you are 50 years or above, you contribute $22,000. Compare this with conventional IRA where you contribute only $ 5000 after tax benefits and $ 6000 if you are 50 years or over that.
You should work out a good 401(K) plan with your employing company. Keep your financial balances good and your profile diverse. You are going to benefit from 401(k) insurance.
The benefit of the 401 (K) plan is that you are saving up a part of your income every month for your retirement. You might not otherwise have been motivated to save up. You might think that retirement is way away from you. Yes, you are valid in thinking that way because nowadays people think about the present more than the future. Times are uncertain and with economic conditions being so bad, you’ll always want to have money for survival today. The younger you are, the lesser the amount of money you need to stack away on a monthly basis on your savings. Start today, when you are young so that when you are old and retired you’ll have enough money to back you.401(K) plans are on the whole very beneficial and an effective means for saving your money in the present times.
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