Trending Now :

Quantitative Tightening, Inflation, & More The Stock Market Is On Sale Investors Need to Netflix and Chill Credit Card Fixed-Interest Loans: Explained Are You Money Smart? Build Your Credit for Free Filing Your Taxes in 2022 Credit Cards that Offer 2% Cashback on All Purchases Navient Ordered to Cancel Student Loans U.S. Mortgage Interest Rates Soaring Two Big Banks Cut Overdraft Fees 2022 IPO DRAFT CLASS: Ranking the Top 10 Prospects Re-Drafting the 2021 IPO Draft All You Need to Know about Buy Now Pay Later companies Credit Card Sign-Up Bonus or SUB The Best Credit Card for the Middle-Class Make An All-cash Offer with No Cash Capitalism Always Ignores Politics All You Need to Know about the Financial crisis of 2007-2008 American Families Face Serious Rent Burden Savings Is An Expense You Can’t Build Generational Wealth If You Are Broke IT’S OFFICIAL: Robinhood is a Meme Stock All You Need to Know About Biden Mortgage Modifications & Payment Reductions Apple Card 2nd Year Anniversary: Should You Get It Now Wells Fargo to Pull Customers Personal Lines of Credit The Rise of Individual Investors The US Housing Market Is Booming. Is a Crash Ahead? Financial Literacy: How to Be Smart with Your Money Non-Fungible Token (NFT):EXPLAINED SKYROCKETED CEO PAY & LONG LINES AT FOOD BANKS Amazon Workers Want to Unionize Another Major City Piloted Universal Basic Income The New Bubble: SPACs SUBMIT YOUR PPP ROUND 2 APPLICATION BEFORE MARCH 31ST Robinhood-GameStop Hearing & Payment for Order Flow Guess Who’s Coming to Main Street Democratic Senators Say No to $15 Minimum Wage BEZOS OUT! President Biden Most Impressive Act Went Unnoticed: CFPB Biden $1.9 Trillion Stimulus Package 2021 IPO DRAFT CLASS: Ranking the Top 10 Prospects $25 Billion Emergency Rental Assistance NO, TESLA IS NOT WORTH MORE THAN TOYOTA, VOLKSWAGEN, HYUNDAI, GM, AND FORD PUT TOGETHER AMAZON TO HAND OUT ITS WORKERS $300 HOLIDAY BONUS Where Does the American Middle-class stand on Student Debt Relief? Joe Biden’s Economic Plan Explained 4 TYPES OF BAD CREDIT REPORTS AND HOW TO FIX THEM What Is the Proper Approach to Not Buy Too Much House? FISCAL STIMULUS PLANS STILL IN ACTION How to Pick Investments for Your 401(k) 10 Simple Ways to Manage Your Money Better All You Need to Know about Reverse Mortgage All You Need to Know about Wholesale Real Estate Credit card Teaser Rates AVERAGE CREDIT CARD INTEREST RATE SURGES TO 20.5 Percent Trump Signs 4 Executive Orders for Coronavirus Economic Relief The Worst American Economy in History WHY CREDIT CARDS MINIMUM PAYMENTS ARE SO LOW? 10 BIGGEST COMPANIES IN AMERICA AND WHO OWNS THEM White House Wants to End the Extra $600-A-Week Unemployment  10 Countries That Penalize Savers FEWER CREDIT CARD BALANCE-TRANSFER OFFERS ARE IN YOUR MAILBOX Private Payrolls and the Unemployment Rate SHOULD YOU BUY INTO THE HOUSING MARKET RESILIENCY? WILL WE GET A SECOND STIMULUS CHECK The Child Tax Credit and Earned Income Tax Credit THE RETURN OF BUSINESS CYCLES Should You Request a Participant Loan or an Early 401(k) Withdrawal? Homebuyers Should Not Worry about Strict Mortgage Borrowing Standards The Potential Unintended Consequences of Mortgage Forbearance All Business Owners Need to Know about the Paycheck Protection Program 10 MILLION UNEMPLOYMENT CLAIMS IN TWO WEEKS HOW WILL THE GLOBAL MIDDLE-CLASS RECOVER FROM A SECOND ECONOMIC RECESSION IN A DECADE? WILL U.S. CONSUMERS CONTINUE TO SPEND? HOW’S YOUR 401(k) PRESIDENT TRUMP SIGNS $2.2 TRILLION CORONAVIRUS STIMULUS BILL MIDDLE-CLASS NIGHTMARE: MORE THAN 3.3 AMERICAN FILED FOR UNEMPLOYMENT CLAIMS IN THE US LAST WEEK. LAWMAKERS AGREED ON $2 TRILLION CORONAVIRUS STIMULUS DEAL CORONAVIRUS STIMULUS PACKAGE FAILED AGAIN IN THE SENATE APRIL 15 (TAX DAY) DELAYED DEMOCRATS AND REPUBLICANS DIFFER ON HOW $2 TRILLION OF YOUR TAX MONEY SHOULD BE SPENT YOU CAN DELAY MORTGAGE PAYMENTS UP TO 1 YEAR, BUT SHOULD YOU? 110 Million American Consumers Could See Their Credit Scores Change The Middle-Class Needs to Support Elizabeth Warren’s Bankruptcy Plan The SECURE Act & Stretch IRA: 5 Key Retirement Changes 5 Best Blue-chip Dividend Stocks for 2020 9 Common Bankruptcy Myths 401(K) BLUNDERS TO AVOID Government Policies Built and Destroyed America’s Middle-Class & JCPenney Elijah E. Cummings, Esteemed Democrat Who Led the Impeachment Inquiry into Trump, Dies at 68 12 Candidates One-stage: Who Championed Middle-Class Policies the Most WeWork: From Roadshow to Bankruptcy Stand with the United Auto Workers Formal impeachment Inquiry into President Donald Trump America Is Still a Middle-Class Country SAUDI OIL ATTACKS: All YOU NEED TO KNOW THE FEDERAL RESERVE ABOLISHED BUSINESS CYCLES AUTO WORKERS GO ON STRIKE Saudi Attacks Send Oil Prices Spiraling REMEMBERING 9/11 What to Expect from the 116th Congress after Their August Recess Should You Accept the Pain of Trump’s Trade War? 45th G7 Summit-President Macron Leads Summit No More Upper-Class Tax Cuts Mr. President! APPLE CARD IS HERE-SHOULD YOU APPLY? THE GIG ECONOMY CREATES A PERMANENT UNDERCLASS 5 REASONS IT’S SO HARD FOR LOW-INCOME INDIVIDUALS TO MOVE UP TO THE MIDDLE CLASS ARE YOU PART OF THE MIDDLE CLASS? USE THIS CALCULATOR TO FIND OUT? WELLS FARGO IS A DANGER TO THE MIDDLE CLASS The Financialization of Everything Is Killing the Middle Class
Participating in your employer 401(k)
American Middle Class

Top 3 Reasons to Participate In Your Employer 401(k)

The estimated reading time for this post is 140 seconds

  • Participating in your employer’s 401(k) plan is the most convenient way to save for retirement

  • Your employer 401(k) lets you save part of your pay before federal and state income taxes are withheld.

  • The standard employer 401(k) match is 50 percent of the employee’s contribution up to 6 percent.

  • Once you enrolled in the plan, the contribution is taken out of your paycheck automatically.

  • Visit the Financial Middle-Class homepage for more stories

Participating in your employer’s 401(k) plan is the most convenient way to save for retirement.  Companies started making the switch from defined-benefit plans (pensions) to defined-contribution plans since the 80s.  401(k) is the premier defined-contribution plan.

Nearly four decades later, 401(k) is the most popular savings vehicle available at the workplace.  Besides its great benefits, many employees choose not to participate in their employer’s plan.

According to Fidelity, the nation’s largest retirement-plan provider, an overwhelming number of millennials don’t participate in their employer’s 401(k)

Employees, who have access to a 401(k) plan at their job and choose not to participate, are potentially leaving money on the table. 

Also, they are missing out on timing and compounding, which are two of the most potent factors in building wealth.

What Is 401(k)

401(k) is a defined-contribution plan sponsored by your employer. It has excellent tax-advantage and provides employees a vehicle to save for retirement. Here are the top 3 reasons to participate in your employer 401(k)

Tax Benefits

Let’s say that you are making $50,000 per year and you are in the 25% tax bracket, your federal and state income taxes will be around $12,500 ($50,000×0.25) at the end of the year. Your employer 401(k) lets you save part of your pay before federal and state income taxes are withheld.

Using that same example above, if you contribute 10% of your pay to your 401(k), your taxes will be around $11,250 ($45,000x.25), and you put away $5,000 for retirement.

You have to pay taxes once you start taking required minimum distributions (RDMs), but your tax bracket will most likely be lower than 25% percent at that time.

Employer Match

Many employers that offer 401(k) will contribute a certain amount or percentage of the employee’s contribution.  The standard employer 401(k) match is 50 percent of the employee’s contribution up to 6 percent.

In the above example, your employer will add $1,500 (($50,000.06)/2) to your savings.  Numerous financial experts advise employees to contribute up to their employer’s match.  

That advice is not accurate. 401(k) provides you a convenient way to save; you should contribute as much as you can in the plan.

Automatic Savings

Once you enrolled in the plan, the contribution is taken out of your paycheck automatically. 

Your employer match is added to your account every year. In our above example, you could save up to $6,500 each year without realizing it

BACK TO TOP
Continue Reading
5 Comments
Advertisement
Finance / Jun 11, 2022

Quantitative Tightening, Inflation, & More

The estimated reading time for this post is 137 seconds The median one-bedroom rent is...

Resources / May 29, 2022

The Stock Market Is On Sale

The estimated reading time for this post is 130 seconds The stock market is on...

Resources / Apr 20, 2022

Investors Need to Netflix and Chill

The estimated reading time for this post is 173 seconds Investors need to Netflix and...