5 Reasons You Need a 401K Now

According to CNN Money, “Many financial planners recommend that you save 10% to 15% of your income for retirement, starting in your 20s.” The big problem is that most people do not start in their twenties, because they are not thinking about retirement. They do not realize the benefits of compound interest. Typically, most twenty year olds are thinking of how to have fun right now and not how much can I save for retirement. Below, you’ll see a few reasons as to why someone should start a 401K right now, rather than waiting until later.

An easy way to save money

If you are fortunate enough to be offered a 401(k) through your employer, then you should take advantage of it. It happens to be one of the easiest ways to save money. The old saying is you never miss what you never see. What I mean by this is it comes out of your paycheck before you see it so you don’t miss it. 

The benefit of tax deferral

What is tax deferral? Tax deferral simply allows you to accumulate money without that money getting taxed during the deferral period. Because the money is not taxed, your money is able to grow faster. We all want our money to grow faster and that is why most Americans use some form of tax deferral to save for retirement.

Can save more in a 401(k) than in an IRA

According to irs.gov “your 401(k) contribution limit increases to $19,000 for 2019; IRA limit increases to $6,000. That means that you can contribute more money into a 401(k) than into an IRA. If you had access to a 401(K) and you had not saved anything at age 60, then you could max out your 401(K) and have $95,000 saved by age 65. The majority of individuals are not saving the maximum contribution, but if they wanted to they could save a whole lot more than in an IRA.

Access to free money

The free money comes in the form of a company match. Not all 401(k) plans have this feature but most do have it. At the very least, you should contribute to get the free employer matching money. Nothing is better than free. Find out from your employer how much they will match and start saving that money now.

Keeps money locked up so that you will not spend it prematurely

There are penalties associated with a 401(k) to help you to keep the money saved for your future. Yes, in some circumstances you can access the money, but there are rules that must be followed. We all need to be saved from ourselves. What I mean is if money is easily accessible then it is easier to spend. That is why I say locking your money up is a good thing.

In conclusion, a 401(k) is an easy way that most Americans use to save money for retirement. Retirement comes for everyone eventually. It is better to be prepared for retirement by having money saved so you can enjoy your golden years.

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