So you are eligible to start making 401k contributions?
Consider yourself lucky since only about half of people employed in the U.S. have a 401k plan made available to them by their employer.
If you have one available to you and you are not contributing, maybe you don’t see the value in it or you feel there are more important things you should be saving for. That’s certainly understandable. After all, life is chock full of things we must do TODAY, and it’s sometimes difficult to consider the damage we are doing to our financial future by holding off making contributions to our 401k for “another year”.
But before you know it, “another year” has turned it to several and then you are really behind. Remember that the longer you wait to start saving in your retirement plan, the more you are going to have to sock away each month to play catch up when you finally do start.
Why Should you Contribute?
Even if it is just a little bit, you need to start now. You’d be surprised how the power of compounding can turn hundreds of dollars into thousands over the course of a few years. Also, don’t forget that all of your earnings continue to grow tax-deferred, so unlike a taxable account, the IRS cannot touch any earnings in your account until you take a distribution.
If it seems intimidating to you, don’t worry. Chances are you’re not on your own when it comes to making 401k contributions to your account. Your employer is likely putting some money in it, too. This free money will help go a long way and give your savings a much needed boost.
This section attempts to uncover many of the possible types of 401k contributions that could be made. You should read through these pages carefully to understand what you may possibly be missing out on. We hope you get started today!
Types of 401k Contributions
- Employee Deferrals
- Employer Match
- Profit Sharing Contributions
- After Tax Contributions
- Rollover Contributions
It’s pretty obvious that a 401k plan is designed to accept contributions for the benefit of you, as the employee. But what may not be so obvious are the types of contributions that it can accept and how they are beneficial to everyone involved.
You are likely not the only one making contributions to your account, so it’s important, too, that you understand what your employer may be doing to help you along the way to make your 401k nest egg even bigger!
As you can see, there are a handful of different types of 401k contributions that can be made. Both from you and your employer. These include profit sharing, employer match, employee deferrals, after tax, and rollover contributions.