The Importance of 401k Plans

There are a good number of investors that use the 401K plan for retirement. This is a great way to help your employees save for retirement as they can make tax deferred savings. However what is common in most companies is that most employees do not take advantage of the plan because they probably do not understand the advantages and importance of 401k retirement plans.

 

The matching contribution feature in this plans have an additional advantage to the employee. With this retirement play your employer is required to match a certain amount of your savings meaning that those who do not participate are missing out on free cash. This plan almost guarantees a fifty percent return on your investment when the employer matches your saving. Even in cases where there is no matching employees still gain by from the tax advantages exposed to them.

 

When you channel a few amount of your cash to the small business 401k plans it means that you will start paying less tax. This is because the contribution from your pay is deducted before any tax calculations are made meaning that your taxable income is less and so will be your tax bill. You will be postponing the tax on your income to the retirement savings although it is still possible to pay for a little tax if you desire in order to ease the burden of paying a lot when you start collecting your savings.

 

It is possible to borrow from your 401k plans for some specified reasons including economic hardships, school fees and medical fees. Usually these loans have to be returned at an interest rate within a limited five year period but this may be extended in case of a home purchase. The good thing is that for as long as you are employment you will enjoy paying the loan back without incurring any income liability.

 

The 401k plan is the best avenue for investment and provides a variety of investment avenues to choose from. You can choose to trade in money funds, mutual bonds and stocks whichever avenue makes you comfortable. Just like any other type of investment there are potential risks and rewards involved in using any investment method. It is advisable to balance and distribute your savings among the available options.

 

It is therefore crucial for employees starting a retirement plan. The earlier you start the better your chances of gaining maximally even beyond your age for retiring nears. With the 401K plan, timing is everything especially if you want to enjoy your investment proceeds.