Why Invest in a 401k Retirement Plan
The 401k retirement plan is based on section 401k of the Internal Revenue Code of the U.S. It basically states that 401k contributions will automatically be deducted from employees pay every pay period. The amount will be deducted from their pay before it is taxed. These contributions could be invested in stocks, mutual funds or other financial instruments included in the plan.
It’s up to the employees where they want to invest their contributions. Employers may also contribute to match the employees in the plan. Last, but definitely not the least, 401k retirement plan appeals to many because it is not taxed while the funds grow.
The Advantages of a 401K Retirement Plan
- It has a very great tax advantage. For starters, it helps lower the tax on your salary while you save up for your retirement. The best part is that transaction during its growth, such as capital gains or interests, are also not taxed. You will only be taxed when you withdraw your funds.
- Employers can match your 401k contributions. Although employers are not required to do so, most actually do so probably to attract and retain good employees.
- You control your investments. There are usually a wide variety of investment choices available for employees with 401k contributions. There are low or high risk-investments and long or short-term investments to choose from. Financial planners of the fund can help you in making the right choices.
- It is one of the most portable retirement plans. With a 201k plan, you have several options when changing employers. The most obvious of course is to transfer (rollover) the funds to your new employer. There are other options available to you such as leaving it to grow with your previous employer, moving the funds to an Individual Assets Account (IRA) or cashing it in. In such cases, know the policies of both your previous and new employers when it comes to 401k plan management before making a choice. Cashing in may be the worst choice to make unless you badly need funds.
Investing in a 401k retirement plan is worth considering especially if you want to enjoy a lifetime in another country. However, if you consider investing a portion of your savings while abroad, you may consider having a versatile e-wallet service so you can make international remittances, anytime, anywhere in the world.