From time to time I have a conversation with a new retirement plan participant and they are leery about contributing to their employer-sponsored 401k plan. The main reason for the apprehension is that they don’t know enough about the plan itself, which is where our value as advisors starts to really shine. While it may be obvious for some, I’ve reinforced the basics on why you should participate in your 401k in the below blog post
TOP 5 REASONS TO SAVE IN YOUR COMPANY’S 401(K)
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It’s Easy!
Your 401(k) contribution is pulled directly from your paycheck, in an amount you specify, automatically and before you can spend that money elsewhere. Putting retirement savings aside before it hits your bank account is a behavioral guardrail helping you prioritize preparation for retirement.
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Tax Benefits
Traditional 401(k)contributions are made pre-tax, meaning they lower your taxable income right away and grow tax-deferred. You can save more without feeling the full effect in your net pay. As a result, Traditional 401(k) savings, including the earnings on it, are taxed on the back-end, when you withdraw money in retirement. Some plans, however, also have a Roth 401(k) option. These contributions are made after-tax at your current tax rate. Qualified distributions from your Roth 401(k) savings, including earnings, should be tax-free
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Don’t Leave Money on the Table
If your employer offers a matching contribution, strongly consider saving as much as you can to receive the full amount. Think of it as “free money “or like a guaranteed return on your investment, simply for contributing to your own retirement account.
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Dollar-Cost Averaging
When contributing to your 401(k) plan with each paycheck, you are taking advantage of something called dollar-cost averaging (DCA). As the market rises and falls, you are purchasing shares of your investments at varying prices. Dollar-cost averaging allows you to buy more shares when the price is down and fewer shares when the price goes up. This generally results in your average share price decreasing over time and can be less risky than investing a large amount all at once.
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Professionally Managed Portfolios
The professionally managed portfolios in your plan are strategically built to give you the greatest chance of achieving your financial retirement goals. With allocations tied to risk profiles ranging from Highly Aggressive to Risk Averse, they include an appropriate number of low-cost, evidence-based stock and bond funds. These portfolios are rebalanced quarterly to maintain the asset class split and associated risk level that you originally selected, systematically helping you sell high and buy low.
If you are a Plan Sponsor or Administrator and want to learn more about how we engage participants, schedule a time to chat about our service model https://calendly.com/jmilliken