You've probably seen it listed as a benefit at various jobs or heard it mentioned in conversation
, but a great number of people don't really know the basics of what these accounts are and what they can offer you. This article goes over some of the basic facts you need to know about 401k plans to start building towards a healthy retirement.
The first thing to know is that you start them through your employer. Not every employer offers them as a benefit, so you'll want to check with yours. Your employer hires another company to handle your account for you.
You cannot access your contributions until you reach retirement age (fifty nine years and six months old) without penalty. This involves paying state and federal taxes plus a ten percent early withdrawal penalty. Altogether this can easily total thirty to forty percent, depending on your tax bracket. This is a huge dent to your retirement savings that should be avoided.
Another important thing you need to know about 401k plans is the contribution match. This is one of the main advantages of these accounts versus other options that is not available with every employer, so if your employer offers it make sure to take advantage! How this basically works is that your employer offers to match your contributions up to a certain percentage. This means that if the point is set at two percent, then if you contribute two percent of your income to your account your employer will also contribute that amount of money. I'm sure this sounds like a small amount, but over time the amount you contribute, your employer contributes, plus the money you earn back on your investments all work together to become a nice nest egg.
There's always more to know about your retirement account options but these basic facts you need to know about 401k plans will help get you going towards a large nest egg.