Many people contribute to their 401(k) to get the matching contributions from their employer, if that is offered to them. However, a lot of people do not contribute more than the amount that their employer will match. Unfortunately, by not contributing extra to your 401(k) account, you’re missing out on plenty of benefits. Here are some of the top reasons why you should definitely contribute extra to your 401(k). You can check out the Suncorp superannuation calculator to find out how much you really need to retire.
1. You Get Automatic Savings
Contributions to your 401(k) plan are taken out of each of your paychecks every pay period, allowing for simple, automatic savings. You don’t ever have to make a bank transfer or write a check to deposit funds into your 401(k) account, making this an excellent option to save money, especially for those who don’t feel like they have the discipline to add to their savings regularly.
2. Tax Breaks are Available
When you contribute to your 401(k) plan, you are reducing your taxable income, as the government allows you to put a certain dollar amount each year into your plan before taxes are calculated on your gross income. While your funds are in your plan, taxes on all of the interest you make on both the money you contributed and any matching contributions your employer made are also deferred.
So, you don’t have to pay taxes on them until you take the money out of your 401(k) plan when you are ready to retire. In addition, your contributions into your 401(k) plan can also help to drop you into a lower tax bracket where you would pay a lower rate on your taxes.
3. Your Contributions are Portable
All of the funds you contribute to your 401(k) plan are portable, allowing you to take those funds with you even if you switch jobs. It is important to keep in mind that you only have a 60-day deadline to do so, though, before you have to pay taxes on those funds, as well as a 10% penalty if you are less than 59 ½ years of age.
4. You Can Contribute More Than an IRA
The government allows for higher annual contributions to 401(k) plans than IRAs, which have a much lower limit on the amount of tax-deferred money you can contribute each year. In fact, you can contribute more than triple the amount each year to your 401(k) plan than you can to your IRA.
5. Social Security Will Not Provide Enough
Social security is only supposed to provide a percentage of your retirement income, not the full amount. So, a 401(k) could definitely help to make up another part of your retirement income, so you can live comfortably in your retirement. Contributing money into your 401(k) plan each month could definitely help you save up plenty of funds for your retirement, allowing you to retire when you want to and without worry of financial stress.
Do you try to max out your 401k contribution?
