Breaking it down Barney style means to strip a lot of the noise and provide basic information about subjects. This is a starting point and as time goes along, we will build from there.
401(k)* accounts allow us to contribute a portion of our paycheck to our retirement account, prior to paying taxes. This reduces our income for the yearly tax filing. That’s as basic as I could make it. 🙂
401(k) Barney Basics –
1. Employers usually match contributions. Please don’t leave free money on the table. We should be contributing at least the minimum amount to capture that match. For example, the employer will match up to 3%, as long as you contribute 3%.
2. Employer fixed contribution. This, again, is money on the table. As long as we are participating at a minimum level, the employer will contribute a fixed percentage. For example, the employer will contribute a fixed amount of 3%, as long as you contribute 1%.
3. An opportunity to save for retirement. With high contribution limits, we have an easy opportunity to save for our retirement. Set up your contribution amount one time and the system will automatically deduct the contribution once it’s set up.
For 2018, the contribution level is up to $18,500. For those age 50 and older, you can contribute up to $24,500.
By using a 401(k), it allows us to participate in the financial markets. We are able to invest in a variety of investment options such as stocks, bonds, ETFs, mutual funds, money markets and more.
Why do we want to save?
So we can retire!
When we retire, we rely on these retirement accounts to help pay for our expenses. This is also when we pay taxes on those qualified monies. Saving for your retirement is paramount, make sure you are utilizing the tools available to you.
I hope you enjoyed the first – Breaking it down Barney style.
Disclosure – Information contained herein does not involve the rendering of personalized investment or financial advice, but is limited to the dissemination of general information. *There are Roth 401(k)s, which have different tax advantages. Those are not discussed in this article.