5 Facts About the 401(k) Plan That Will Instantly Put You in a Good Mood

401k plan

How would you feel if the IRS offered to take care of retirement planning and investment for you?

Well, this is what a 401(k) retirement plan is. It is an account opened by your employer for you to safely and painlessly invest your hard-earned money in. Some employees prefer to contribute a certain portion of their monthly salary to the 401(k) plan each month while others automate the process of money transfer. Don’t be skeptical. Know as much as possible about this plan and have your future planning and investment is done by the government itself.

Here are 5 facts about the 401(k) plan that will instantly put you in a good mood

1) You can roll the money from the 401(k) into another 401(k) account or an IRA (Individual Retirement Account)

Your 401(k) account is initiated by your employer for you to contribute every month. But what if you decide to change jobs? Or get offered a job with a higher salary package? In such a case, you can either transfer the current account to another 401(k) account or start a new Roth IRA plan with the money from your current account transferred automatically in it. This is excellent news for those who constantly worry about account transfer procedures.

2) IRS has raised the employee contribution limit by $500 in 2019

In 2018, you could only contribute to the 401(k) plan to $18,500 per year. But this year IRS has raised the limit till $19000. This is great news as the more you contribute the more interest you can expect at the end of your retirement.

3) Now you can withdraw money from a 401(k) well before retirement with “hardship withdrawal” rule

It pains to know that you won’t have access to your hard-earned money until you reach the retirement age(which is 59 years and 6 months). IRS is making it easier for those investors to withdraw money early who have found themselves in a financial crisis or have an immediate need for money. However, make sure your plan allows you to do so.

4) You can borrow money from your 401(k) account

In a fiscal emergency, it makes total sense to take a loan against your 401(k) account rather than withdrawing from the account itself. Early withdraw has its downsides. You will have to pay a 10% early withdrawal penalty and the money will be taxed as regular income. But keep in mind that a short term 401(k) should only be taken in dire times. For instance, you need money for an urgent medical procedure, or you ran out of money and don’t have enough funds to pay off your mortgage.

5) 401(k) is the safest and the most painless way to reduce your overall taxes

There are plenty of ways to reduce the amount you pay on tax. Ideally, every penny you earn is taxable. But by being a bit creative you can exempt a certain portion of your paycheck from being taxed. A 410(k) is one of the best ways to do so.

Summary

I hope these five facts made you feel more assured about the efficacy of the 401(k). A 401(k) plan is one of the best retirement plans out there. Particularly, for those who don’t want to risk their hard-earned money on shady investment schemes.

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