The Benefits of a 401k

The benefits of 401k plan

The benefits of a 401k, like any retirement plan, is to ensure that workers save money for the future. It forces workers to put money aside so that they’ll have funds when they retire.

To encourage people to put aside money that they’d probably like to spend now, the government offers tax benefits for funds paid into a 401(k). So if you’re earning a high income now—and paying a high rate of tax—but you expect that your tax rate will be lower after you’ve retired, then your 401(k) can save you a significant amount of money.

Someone paying the top rate of income tax might be able to spare putting $19,000 into their 401(k) each year, for example. Instead of giving 37 percent of that amount to the government in income tax, they could put into their 401(k) and they may only have to give 10 percent to the IRS when they take it out. They have saved more than $5,000 each year.

The benefits of a 401k plans also have employer matching contributions. As we’ll see, those contributions don’t have to be one-to-one but they do provide important extra income that you can use in the future.