How does 401(k) work for young professionals?

Many young professionals entering the workforce are starting careers with companies that offer 401(k) retirement plans as part of their benefits. This is a plan that allows the employer and employee to make tax deductible contributions to the employee’s account to save for retirement. 

Some young employees may not understand the value of their 401(k) and how it benefits them now and in the long  run. We will help break down how a 401(k) works, how it helps you now and why it is beneficial for your future.

How does a 401(k) work?

A 401(k) plan is only available through employers who offer it as part of their benefits package or for self-employed people who start a solo 401(k). Workers who do not have 401(k) benefits as part of their job can use other savings methods, such as an IRA.

With a 401(k) plan, an employer most often commits to contributing a certain amount of money to the account along with the employee. Companies offer different matching strategies. For example, an employer may offer to contribute 50 cents for every dollar an employee contributes up to 60% of the annual contribution limit ($19,500, or $26,000 if you are 50 or older).

401(k) contributions are made with pretax dollars, usually withdrawn automatically from your paycheck. This is beneficial for you now because it lowers your income tax liability, which means you owe less on your taxes for the year. It is beneficial for your future because these funds are allowed to generate interest without tax over the course of several years until you reach your retirement age.

Of course, you have to pay taxes on your contributions eventually. This happens when you make withdrawals from your 401(k) savings during your retirement.

Talk to a ProVise CFP® professional about getting the most out of your 401(k) strategy

Retirement planning is no walk in the park. You need to identify your goals, how much you can realistically save and how much risk you are willing to take with your investments. Fortunately, you do not have to make these decisions alone. At ProVise Management Group, we can help you make a retirement strategy that works for you.

Our CERTIFIED FINANCIAL PLANNER™ professionals can get to know you and your current financial circumstances, goals, risk tolerance and personal values to help you develop a plan that works for you. We can also create a written plan for you at a fiduciary standard of care. All our written plans come with an unconditional money-back guarantee. If you are unhappy with your written plan, you can return it to us, and we will refund 100% of the fee paid.

Are you ready to talk to a professional about planning for your retirement? Contact ProVise today to schedule a complimentary consultation.