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401 K Retirement Plans

401 K retirement plans are offered by a vast number of employers to assist their employees with the task of saving for the golden years. This is a wonderful perk that should be taken advantage of if you work for an employer that offers this benefit for you and the other employees that work for the company. However, selecting between the various options that are available and making the proper asset allocations can be a little confusing when you are new to the world of investing for the post working years. As such, here are details regarding the various 401 K options that you may encounter when you are establishing the plans for the first time.

Selecting a Roth 401 K

The options that will be available for the 401 K retirement plans offered by your employer can depend on many things such as which company you work for. As such, you will need to speak with your human resources representative regarding the exact 401 K account choices that are being offered. However, a growing trend among many companies is to offer a Roth version of 401 K retirement plans in addition to the traditional 401 K that they have offered in the past.

If you see that your employer offers a Roth version, this basically means that you will be contributing money towards your goals post tax rather than using pre-tax dollars or a self employer based plan. The main benefit that many professionals cite for selecting these 401 K retirement plans is that most individuals will likely be in a lower tax bracket when they are younger and when they are contributing to the accounts that they've opened. As such, the reasoning is that you can pay the lower taxes in the lower bracket now and be able to withdraw the funds from the savings without being taxed in the golden years.

Choosing a Traditional Option

Another option that you will likely be offered to the 401 K retirement plans that are offered by your employer is a traditional option. This will mean that the money you put into the savings will be pre-tax. There are certainly also advantages to this nest egg choice so it is important to speak with a finance professional regarding which choice may be the best one for you to select. After choosing the basic plans that are offered, you will then need to begin determining how large of a risk you are willing to take with the investments, which is also known as selecting the asset allocation. You will also need to determine how much you would like to contribute into the 401 K retirement plans each month. Typically, employers will offer to withhold the specified retirement planning amount from the paychecks of their employees to deposit it into their retirement accounts to simplify the process of saving for the post working years.

If your employer matches the contributions that you make to the 401 K retirement plans by a certain percentage, it can be very beneficial for you to contribute at least up to the matching amount. This can be beneficial since a match is basically free funds that you will receive for the plans to achieve your retirement goals sooner. Of course, not all employers offer matching, but this is certainly an option that is worth looking into just in case you are one of the lucky ones who works for such a company.

Other Account Choices

While 401 K retirement plans can certainly be useful tools to assist with achieving the plans that you have for the retirement years, there are also other choices that can be useful for you to consider. After opening a 401 K account, you aren't restricted to only contributing to that option for the remainder of your life. Rather, you can also select between choices such as Roth IRA and traditional IRA plans to enhance the goals that you have for the post working years. The more you contribute now during the working years, the longer compounding interest will be able to work and earn you more money for the retirement years.

A main benefit of also opening an IRA in addition to 401 K retirement plans is that this will ensure you still have an open account if you happen to leave the employer where you are currently working. While you will still have the 401 K plan after you leave the employer, you will no longer be able to contribute to it through the workplace plan and will certainly no longer have access to the matching perk. As such, with the IRA already opened, you can continue contributing towards retirement while you work with a finance professional to create new goals for the plans that you have opened.

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