One of the most common terms to encounter when thinking about retirement planning is 401k. Many laud the tool as a great way to help save for retirement without getting nailed by taxes. While this can be true, many people are forced to consult professional planners in order to properly set up and use a 401k plan because the entire area can be so confusing to those who have not studied it thoroughly.
In fact, as much as the phrase “401k” gets used, some people don’t even really know what such a plan is. If you’re looking to grasp the basics of 401k planning, look no further! Check out these 6 pointers that comprise the essentials of constructing and maintaining a 401k plan.
What is a 401k plan?
A 401k plan is, simply put, a way for employees to defer paying taxes on their income. By contributing money toward retirement through a 401k, income taxes are not paid on contributions until they are withdrawn, meaning that the employee does not have to pay levies on that money immediately. Usually, 401k plans are run by employers for their workers, meaning that such a program is internally linked to a job. By contributing to a 401k, you can stand to save significant amounts of money in taxes compared to traditional retirement plans. The funds can then be accessed once you are 59 and a half years old.