5 Benefits of Investing in a 401(k) Plan

Retire

Achieving your retirement dreams won’t happen by accident. In order to live the retirement lifestyle you dream about, you must start saving. Your company’s retirement plan can be one of the best tools available to help you build your financial future, especially if you are a new investor. For many, putting aside even a small percentage of your paycheck may feel like it will make a large impact to your financial situation when you are first deciding on a realistic contribution rate.

Here are 5 benefits of mosttraditional 401(k) plans:

1. Tax advantages

Contributions to a traditional 401(k) are taken directly out of your paycheck before federal income taxes are withheld. Because the contributions are pre-tax, it lowers your total taxable income which means you might owe less in income taxes, regardless of whether you itemize or take the standard deduction. It may even put you in a lower tax bracket! Your pre-tax contributions are then tax-deferred until you choose to withdraw them in retirement. The premise is that in retirement you’ll likely be in a lower tax bracket than if you were taxed on the money now.

2.You are in control

You can contribute as much or as little as you want to your account (subject to plan and IRS limits). Plus, you have the flexibility to change your contribution levels at any time (subject to plan limits) dependent on your situation.

3. Time is on your side

The earlier you start investing, the more time your moneyhas togrow. One of the biggest advantages of investing in a 401(k) early is compound interest. Compound interest is when you earn interest on the principal amount of an investment plus any accumulated interest, i.e. it’s when you earn interest on interest. Compounding can have a big impact on long-term investment and should be considered a powerful ally when it comes to saving for retirement. It may not seem like much looking at your 401(k) in the early days, but compounding can really add up.

4.You can take it with you

Even if you change jobs, the money you’ve contributed to your 401(k) and its earnings belong to you. Depending on your plan type, there are different ways to keep your retirement plan invested and growing on a tax-deferred basis. If you’ve left an employer, but still have an old 401(k) with them, find out what your options are for leaving it in plan or moving it somewhere else.

5. Easy payroll deductions

Starting to save early and contributing consistently is essential to preparing for retirement, even if it feels lightyears away. With a 401(k), you can make automatic contributions directly from your paycheck. It makes saving a simple and effortless process. And, since the deduction is taken before you get paid, you won’t miss the money. When it does cross your mind, you should feel great that you’re taking the right steps to secure your future!

More on this topic

Certain restrictions and conditions may apply to different plans. When withdrawing money from your plan, carefully consider the options available to you including rolling your money over to another qualified account to avoid potential tax penalties.

Please note: Financial advice should be tailored to individual circ*mstances and the content of this article should not be viewed as recommendations. This article is not an endorsem*nt of any particular product, service or organization; nor is it intended to provide financial, tax or legal advice. It is intended to promote awareness and is for educational purposes only.The specific applications and services noted are not necessarily endorsed by John Hanco*ck or any of its affiliated businesses.

Advisory services offered through John Hanco*ck Personal Financial Services, LLC, an SEC Registered Investment Adviser. Boston, MA 02116. 888-955-5432.

JHA B 6114:1018542LLO-20181102-2

As an enthusiast and expert in financial planning and retirement strategies, I bring a wealth of knowledge to help you navigate the complex world of securing your financial future. My understanding goes beyond the basics, delving into the nuances of retirement planning to empower individuals like yourself to make informed decisions.

Now, let's dissect the key concepts presented in the article you shared:

Importance of Saving for Retirement: The article emphasizes the significance of intentional retirement planning. It stresses that achieving your retirement dreams requires proactive steps, primarily through savings.
Role of Traditional 401(k) Plans: The focus is on the benefits of traditional 401(k) plans, particularly for new investors. These plans are highlighted as valuable tools for building financial security.
Tax Advantages of Traditional 401(k) Contributions: The article discusses the tax advantages of contributing to a traditional 401(k). Contributions are made pre-tax, reducing total taxable income and potentially placing individuals in lower tax brackets. It also introduces the concept of tax-deferred withdrawals in retirement.
Control and Flexibility: Traditional 401(k) plans offer contributors control over their contributions, allowing them to decide how much to invest. The flexibility to adjust contribution levels based on individual circ*mstances is also highlighted.
Time and Compound Interest: Early investment in a 401(k) is promoted, emphasizing the power of compound interest. The article explains how compounding can significantly impact long-term investments, making it a crucial ally in retirement savings.
Portability of 401(k) Funds: The article assures individuals that even if they change jobs, the funds contributed to a 401(k) belong to them. It encourages exploring options for keeping the retirement plan invested and growing, even after leaving an employer.
Automatic Payroll Deductions: The convenience of automatic contributions directly from paychecks is highlighted. The article suggests that this makes saving simple and effortless, as contributions are deducted before individuals receive their pay.
Retirement Planning Simplified: The overarching message is that sound retirement planning doesn't have to be complicated. By participating in a company's retirement plan, individuals can access a range of benefits to take control of their financial future.

It's important to note that the article concludes with a disclaimer, emphasizing that financial advice should be tailored to individual circ*mstances and that the content is for educational purposes only.

Feel free to ask if you have specific questions or if there's a particular aspect you'd like more information on!

5 Benefits of Investing in a 401(k) Plan | John Hanco*ck (2024)