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Nine Tips for Managing a 401k Plan

Economic instability starts people worrying about retirement. 401k plans ensure the employed continue to reap the benefits of their working days once retired. Most start planning for their retirement well before the day comes, but not everyone knows how. Workers can advance their retirement, not to mention make it more comfortable, by making smart decisions today.

Starting Now
Workers should begin contributions to their 401k plan as soon as possible. While an employee may not be in a financial situation to make big contributions, starting as small as two or three percent helps. The sooner people start contributing, the brighter their future looks.

Knowing the Law
The law allows workers to begin contributing to their 401k plan one year after service. An employer cannot make you wait longer than that. Once eligible, a worker can start making the maximum contributions if desired.

Its Easy
401k plan contributions can be taken straight from a workers paycheck. Adding to an account is simple. The process is comparable to establishing direct deposit. The physical responsibility of depositing funds towards the 401k is taken care of for the worker.

Making Maximum Contributions
The more an individual contributes to their 401k plan, the faster and bigger the account grows. Some suggest contributing maximum amounts in order to reap the most benefits.

Employer Contributions
Many employers match employee contributions. This can be viewed as a tax-deferred raise. Employees should attempt to take advantage of this matching as much as is financially possible for them. Employer contributions can entice workers to devote more to the 401k plan.

Tax Benefits
401k plan contributions are taken out of an employees paycheck pre-taxes, meaning that taxes are not deducted until the funds are taken out. The pre-tax system benefits workers by enabling them to save at an accelerated pace. Pre-tax dollars also lower an employees taxable income, so the IRS takes away less in taxes.

Leaving it Be
Some people view their 401k account as a savings account; yet, this could be a major error. Experts urge employees to continue to add to their 401k account until retirement without taking any money away. Additional taxes and penalties may apply if employees do not pay back borrowed funds or if an employee leaves their job.

An employees monetary situation can fluctuate during their working life. This means employees should continuously monitor their contributions. For instance, if an employee gets a raise, it may be wise to raise 401k account contributions as well.

An employer should receive quotes and information from several 401k plan providers before making a decision. Also, employees may have several investment options from which to choose. These choices should be considered and evaluated carefully, as they affect the current and future financial situations of both the employer and the employee.


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