After reading several articles on the lack of retirement savings, here are three reasons you should participate in the 401(k) program offered by your employer.
1. You would like an immediate 100% return on your investment.
If your employer matches a portion of your contributions, that match gives you a 100% return. For example, if you earn $500 per week, you contribute 3% and your employer matches 3%, you will contribute $15 per week to your 401(k). With the match, your $15 contribution becomes $30. That’s an extra $15 or 100% return on your investment.
2. You want your investment to be protected if you or your employer are sued.
Under current law, the money you hold in your 401(k) is protected from your creditors, even if you file for bankruptcy. In addition, those funds belong to you so they are also protected, by law, from your employer’s creditors.
3. You want the government to pay part of the cost of your investment.
When you make a contribution to your 401(k), the amount of your contribution reduces your taxable income by the amount of the contribution. If you make a $15 contribution to your 401(k), your taxable income goes from $500 to $485. If your federal income tax rate is 10% and your state income tax rate is 5%, that $15 contribution to your 401(k) will reduce your pay check by $12.75, not $15 because your taxable income is less. In essence, the federal and state governments are paying $2.25 of your contribution.
Have questions about your 401(k) or other retirement accounts? Contact us at [email protected] or 402-504-3497.Judith Ackland has more than 26 years of experience in accountancy and financial planning, including seventeen years as a CFO of a diverse business. She started Crystal Financial in 2010 to help a wide array of individuals, families, and business owners better understand their finances and how good financial management could help them achieve their goals. Judith has an MA in Professional Accountancy from the University of Nebraska at Lincoln as well as a Certified Public Accountant Certificate and a Certified Financial Planner designation.