401(k) plans can boast a number of the benefits that come with pensions. Contributions are tax-deferred, reducing a participant’s tax levels. The company makes the contributions automatically so that participants don’t feel the money leaving their bank account: they can look at the bottom line while also knowing that they have a pension whose value grows each month. Nor do they have to shop around for a retirement fund, comparing fees and growth rates. The employer will do that for them. When the employee reaches the company, the 401(k) plan will already be up and running. Often, the fund manager will be a well-known financial organization.
The Benefits of a 401(k) Plan
The matching funds also provide a way for employees to increase their salaries. The match is unlikely to be 1:1 and it will be limited. But employees who agree to add extra to their 401(k) plan each month have a way to increase their income, even if they won’t see that extra cash until they retire.
The biggest benefits of a 401(k) plan then are that it lowers your tax liability and it’s almost effortless. As soon as you join a company with a 401(k) plan, human resources will enroll you, and you’ll have one channel to your retirement organized.