Should I contribute to my employer’s retirement plan?
A retirement plan, such as a 401k or 403b, is one of the most important benefits of your total compensation package as an employee. It is a large piece of your retirement planning room, and it must be upkept to Keep Your Financial House In Order. Employer retirement plans can set you up to make simple, consistent contributions to tax-advantaged accounts that will support your retirement one day. But how exactly should you utilize them? Here are a few things to keep in mind when making decisions regarding your retirement planning room.
- Are my contributions pre- or post-tax? – Pre-tax contributions allow you to reduce your taxable income by contributing to your retirement account before you pay taxes. However, in retirement you will have to pay taxes on the withdrawals. On the contrary, post-tax (Roth) won’t give you a tax break today but will allow you to withdrawal tax-free in retirement.
- Does my company match my contributions? – If so, you should contribute at least up to the maximum match amount. If your employer will contribute $1 for every $1 you contribute, it is an automatic 100% return on your money.
- Is there a vesting schedule? – A vesting schedule means you aren’t entitled to all your account’s value until a certain number of years at the company. If you were to leave or retire before the account is 100% vested, you wouldn’t be able to roll over or withdrawal all your money.
- How should I invest my contributions? – I highly suggest working with a financial advisor to help with your retirement plan, to help ensure you are investing in the right funds to suit your financial goals and objectives.
If you have questions about Keeping Your Financial House In Order, give us a call today at (615) 457-3481, or email me at caleb@wealthstrategiespartners.com!
401(k) plans are long-term retirement savings vehicles. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty. Roth 401(k) plans are long-term retirement savings vehicles. Contributions to a Roth 401(k) are never tax deductible, but if certain conditions are met, distributions will be completely income tax free. Unlike Roth IRAs, Roth 401(k) participants are subject to required minimum distributions at age 72 (70 ½ if you reach 70 ½ before January 1, 2020).
Any opinions are those of the author and not necessarily those of Raymond James. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. All opinions are as of this date and are subject to change without notice. Investing involves risk and you may incur a profit or loss regardless of strategy selected.
