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Zhi Finance » Why invest in 401 (k) retirement benefit plans?

Why invest in 401 (k) retirement benefit plans?

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To know why we should invest in a 401 (k) retirement benefit plan, let’s first answer the question: “What is a 401 (k) retirement benefit plan?”

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The 401 (k) retirement benefit plan is a retirement savings plan with tax benefits provided to you by your employer. You (and your employer) will deposit money into your 401 (k) retirement benefit plan account. You are the primary depositor, followed by your employer.

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The money you save is always yours and will not be confiscated due to changes in your employment relationship. You may lose money by investing with them, but leaving will not let you lose your hard earned money.

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401 (k) accounts are classified as “traditional” and “Rose”. Although it cannot be generalized, most employers will provide two types of accounts at the same time.

  • 1. Traditional 401 (k) account: deposit money into traditional 401 (k) account and enjoy tax deduction. When you retire to withdraw money, you need to pay taxes.
  • 2. Rose 401 (k) account: deposit money into Rose 401 (k) account. I don’t enjoy tax deduction, but when I retire to withdraw money, I don’t have to pay taxes at all.

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Although many people admire the Ross Plan because there is no income tax for withdrawing money after retirement, the tax rate difference between now and retirement is not particularly large, and the resulting difference in expenses is also limited. If your income is quite low, or you have many children, and you pay little income now, or even do not have to pay taxes, it is best to deposit your money in a Rose type account. If your career has reached its peak and your income is very high, it is more reasonable to deposit your money in a traditional account to avoid paying high taxes. After retirement, you can pay taxes when your income and tax rank are reduced.

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No matter which type of 401 (k) account you choose, the key factor to consider is saving money for retirement. The return on investment of our generation is likely to be less than that of the previous generation, which means that we need to invest more money than our parents to get the same amount of money when we retire. More than ever, we need to get what the financial community calls “compound income”. To put it simply, we need interest to continue to stack with years to provide sufficient funds for our retirement.

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The second reason for saving money in a 401 (k) account is that employers are likely to do the same. If you deposit $1000 this year, the employer may deposit another $500 into your account. The employer’s right to save money for you is vested in you during your employment, which means that if you leave your job during the contract period, you will lose the money deposited in your name by the company, as well as the relevant income. This also means that if you save money in your 401 (k) account, your income will increase, and you should spare no effort to do so. Don’t miss the money you can take for nothing!