Most of us will live through to retirement and when we do we will need an income to continue living. The government does have a limited safety net for you in social security but you do not want to live in retirement on this meager amount of income. Whilst you have the capacity to earn, you need to invest into your retirement, a tax effective way to do that is by the 401(k). Like any investment you could reap substantial rewards or suffer some significant losses. It is extremely important to pay attention to the 401(k) investments you have and take appropriate action of moving them when it looks like you could see some losses coming.
Most people know what a 401(k) is but if you don’t know what it is, it is basically giving your employer permission to invest some of your paycheck into a retirement fund before tax is taken out. The two benefits here is the investment you are making with your future and that you are doing this with a tax advantage that makes it even more attractive. The tax advantage here is that your investment is larger and that has a snow ball effect on accumulating more retirement funds. When it comes time to pay the tax at the withdraw time of retirement, you retirement income is so much greater, than if you paid tax before you invested into the 401(k). When you negotiate your terms and conditions of employment you should also seek to have the employer contribute to your 401(k) retirement fund which again is advantageous to you and also to them as they can claim this as an expenses of business.
With some 401(k) plans you can withdraw funds prior to retirement, you need to check whether you 401(k) will allow you to do this. Usually you will have to pay tax on any early withdrawals. You have the ability to choose your investments with your 401(k). Broadly these investment choices fall under these high level categories of fixed funds, mutual funds and company stocks. You should be aware that sometimes your employer can decide that your 401(k) will be invested in different choices that you have selected. This usually happens when the employer changes the investment company, through a process called re-enrollment. You do have some safeguards here where in general you are entitled to receive 30 days notice before the change takes effect.
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