What You Need To Know About Your 401k

May 25, 2022

Many people may not be aware of the retirement planning process. One thing they may be familiar with, though, is retirement savings accounts like 401k plans. These 401k plans are used as plans for retirement that may provide tax benefits and other perks. This blog post will help provide you with all the information on 401k plans you need! We’ll cover what exactly a 401k account is and how it works, as well as some tips on how you can maximize your retirement potential by using them.

Introduction: What is a 401k retirement plan?

A 401k retirement plan is an employer-sponsored retirement savings account that allows you to contribute pre-tax earnings into the account.
401k retirement plans can be a great way to save for retirement for some. You can contribute pre-tax earnings into your account and avoid paying taxes on it in the present, which can help you save your hard-earned money now and let it grow tax-deferred. These accounts also come with other benefits that may not be accessible with other retirement savings options.

There are some drawbacks as well; these accounts do require contributions, they would require you to have extra funds lying around. However, all contribution plans require people to put money aside, but an employee cannot take advantage of a 401k without making contributions from their paycheck. Additionally, once you reach age 72, you are required to withdraw a specified amount from your 401k called required minimum distributions, or RMDs, which creates a taxable event. The RMDs that you are required to withdraw depends on several factors including your age, life expectancy, and how much money you have in your 401k retirement plan.

Source: https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-required-minimum-distributions#

What are the benefits of using a 401k retirement plan?

The benefits of these retirement plans vary and depend on whether you’re an employee or employer, but there are many perks available to people who invest in their future with one. Some include tax advantages, and company matching contributions while saving for retirement!

What are some drawbacks of using 401k retirement plans?

One of the most significant drawbacks to these retirement savings options for many is lack of liquidity; they usually come with a hefty fee once you withdraw money before retirement age, so it’s not something you want to do without careful consideration! Additionally, if your employer goes out of business or decides to end their contributions (or even changes them), then your retirement plan may suffer as well. If this happens, you might need to consider another job or another form of saving for retirement.
Luckily, there are many retirement plan options available for retirement savings, so if your company doesn’t offer 401k retirement plans; or you don’t qualify to participate; then you can look at other retirement savings options.

Source: https://www.irs.gov/retirement-plans/hardships-early-withdrawals-and-loans

Conclusion on 401k’s

401ks are one way to save up for retirement, but they’re not perfect! In addition to 401k retirement plans, there are more retirement savings vehicles and investment strategies that may be a better fit for you and your planning goals – like Traditional IRAs, ROTH IRA accounts, annuities, and many other available insurance products. For many, a diversified portfolio of various retirement planning tools and tax advantaged products can be effective strategies for saving for one’s retirement.

Retirement planning can be confusing, but you don’t need to be an investment expert or a tax guru to plan your retirement strategy. Instead, a qualified financial advisor can help you understand your retirement goals and help you develop a tax-efficient retirement strategy. To set up a complimentary meeting with one of our financial advisors, click here.

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This content is provided for informational purposes only and is not intended to serve as the basis for financial decisions. E.A. Buck Financial Services is an independent financial services firm helping individuals create retirement strategies using a variety of investment and insurance products to custom suit their needs and objectives. Annuity guarantees rely on financial strength and claims-paying ability of issuing insurance company. Annuities are insurance products that may be subject to fees, surrender charges and holding periods which vary by carrier. Annuities are not FDIC insured.

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