Although retirement may seem like a long way off, it’s never too early to start learning how to save. A 401(k) can be a great way to start preparing for your retirement, especially considering the tax benefits it offers and how easy it is to withdraw your money. Read on for the beginner’s guide to 401(k) plans.
What a 401(k) Is
If you don’t have any previous knowledge of 401(k) plans, it helps to look at them like special kinds of savings accounts. Unlike a traditional savings account, however, a 401(k) holds onto your money until retirement. People use these accounts to save up money from their current paychecks, knowing they can access the money once they’ve decided to retire. Different companies may have different 401(k) setups, so talk to your financial advisor and your employer to learn more about your specific circumstances.
Why It’s a Good Idea
One of the nice things about your 401(k) is that it reduces your taxes while you’re still part of the workforce. The money that you allocate to your 401(k) account won’t be taxed at the time, so you’ll pay less in income taxes. This gives you a little more financial flexibility while you’re preparing for retirement.
How to Withdraw the Money
Once you have clocked out for the last time and are of retirement age, you can decide how you’d like to receive money from your 401(k). Many people choose to receive their money in installments, much like they would after a week at work. Others decide to withdraw the entire lump sum at once, but keep in mind that the money will now be taxed.
If you’re a beginner who is looking into 401(k) plans, it’s a good idea to work with the professionals. At Financial Directions, LLC, we handle estate planning, insurance evaluations, and retirement planning in Tucson. Please feel free to call us at (520) 408-7777 or head over to our website for more information.
