Whether you are entering the workforce for the first time or moving on into a new employment opportunity, one of the most important steps you will want to take is planning your retirement. When going through the hiring process, you will often find that many employers offer a 401K as one of their employee benefits.
These employer-sponsored plans can allow you to accumulate an impressive amount of savings toward your retirement quickly. Today, your friends at Maggi Tax would like to take you through some of the considerations you will want to make when deciding whether or not to sign up for a plan of this nature. Keep reading to find out more!
TRADITIONAL 401K OR ROTH
A traditional 401K is funded by pre-tax contributions, meaning that taxation is deferred until the money is withdrawn at retirement. This lowers your taxable earned income each year. With a Roth 401K, your contributions do not reduce your annual taxable income, but generally, withdrawals at retirement will not be taxable. If you are curious which 401K best suits your needs, the pros at Maggi tax can help you make a wise choice.
CONTRIBUTION LIMITS
Currently, the federal government limits the amount that an individual can contribute to their 401K plan to $19,500 annually. This is going to increase by $1000 annually in 2022. If you have the earning capacity to maximize your annual contributions, an employer-sponsored 401K can be a wise investment vehicle.
PARTICIPATION INCENTIVES
Often, employers will automatically enroll new hires in their company-sponsored 401K plans and select an automatic amount to contribute unless you tell them otherwise. Therefore, it is vital that you take an active role in understanding and managing any retirement plans of this nature so that you can get the most out of your contributions. Additionally, many employers will match a certain percentage of any monies that you contribute. If this is the case, the Maggi Tax team recommends doing everything possible to contribute enough to get the maximum matching benefit.
VESTING REGULATIONS
When you put money into a 401K, that money and any growth it achieves from compounding interest are yours. However, it is essential to note that your employer’s contributions to your account are theirs until you are fully vested. Your employer is responsible for determining when this full vesting occurs and should be transparent with you on this matter. Once you are fully vested in your retirement plan, all monies within it are legally yours. If you are considering moving on to a new job, sticking around long enough to be vested in your current position can keep you from losing out on the sum of money your employer contributed.
Here at Maggi Tax, we know that retirement planning can feel overwhelming. However, we have a fantastic and knowledgeable team that can help you make the wisest decisions for your future. You don’t have to go it alone when it comes to knowing how to best invest in your situation. Call Maggi Tax today!
