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The Benefits of Investing in a 401K Account

By Thomas on March 20, 2018

If you’re contemplating investing in a 401K retirement account, simply continue reading discover some of the many benefits of choosing to invest in a 401K plan according to ShiftPixy.

The benefits of investing in a 401K account:

1. You won’t pay taxes on any money which you choose to invest, until you make a withdrawal from your 401K account

The most significant benefit of choosing to invest some of your income into a 401K account is that you can choose to set up automatic payments to your 401k account, which will be invested from your salary or wages before tax is taken from your earnings.

Which means that you’re definitely far better off placing any money which you have earmarked for your retirement in a 401K account, rather than a traditional long-term savings account. As any disposable income which you choose to save in a regular bank account will be taxed by the government before you’re able to place it into your chosen long-term savings account.

While you will have to pay tax on your investment, this will only happen when you make withdrawals from your 401K account, helping your personal finances.

2. Investing a sizeable chunk of your income into a 401K can decrease the level of income tax which you’ll be expected to pay

You may be wondering how investing in a 401K account, can help you get classified under a lower tax bracket, than the tax bracket which you’re currently in. The simple answer is that your tax bracket is dependent on how much income you bring in, during a financial year.

However, if you choose to make regular contributions straight from your untaxed salary or wages to your 401K account, any money which you invest in your 401K will be exempt from your totaled income for the year. So, it’s well worth calculating how much of your pre-tax income you’d have to invest in your 401K account, in order to drop down to a lower tax bracket.

As a bonus, if you leave your funds in your 401K account until you retire, by the time you withdraw funds from your account, you’ll be likely to be classified in a lower tax bracket, than you’re currently in, which means that in the end, you’ll avoid paying thousands of dollars in tax. Which makes investing in a 401K savings account a wise move.

3. Your savings will grow over time thanks to compound interest

By the time you access your account, your savings will have grown significantly thanks to compound interest, which means that you’ll earn interest on the interest which your account will accumulate over the decades to come.

4. Businesses which you work for will contribute to your 401K savings plan

Another huge advantage of choosing to regularly contribute to a 401K account is that it’s highly likely that your chosen employee will also contribute funds to your account if they offer an employee retirement plan. Even if you switch jobs over the years, the money which you have invested will be safely stored in your 401K savings account.

So it’s definitely worth setting up regular contributions to your 401K retirement account today, in order to maximize the benefits which you’ll receive.

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I’m Thomas Stevens, a financial advisor who has a love for SEO. Anything numbers related excited me, so I started blogging about finances and budgeting. I also help others blog about finance – it’s always good to have a niche! Read More…

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I’m Thomas Stevens, a financial advisor who has a love for SEO.

Anything numbers related excited me, so I started blogging about finances and budgeting. I also help others blog about finance – it’s always good to have a niche!

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