For those of us still working - and lucky enough to have a 401(k) plan available - here are five strong reasons to consider participating to the fullest extent allowed by your plan:
5 REASONS TO LOVE YOUR 401(K)
1. Earnings from the growth of your plan are tax-deferred.
This benefit can accelerate your gains. For example, if you earn $50,000 per year, you could sock away about 30% more simply by deferring federal taxes.
2. The amount you contribute is tax-deductible.
This feature puts you ahead in two ways: You don't pay federal taxes on the money you invest. And the money you would have lost to taxes works for you as part of your plan. Over time, that can make a big difference in how much you accumulate.
3. Your employer may also contribute to your plan.
Typically, an employer may contribute up to half as much as an employee, short of a dollar limit. This is as close to "free money" as you're ever likely to get. It pays to take full advantage of this feature, if your plan has one.
4. Many plans offer low-cost index funds.
If your plan offers stock and bond index funds, consider investing in those funds. Decades of investment history show that index funds routinely outperform so-called "actively managed" funds. The main reasons: low cost and zero exposure to the kinds of mistakes often made by active managers.
5. It's an almost painless way to save and invest.
Your plan can provide a discipline that's hard to come by on your own. The money you invest is simply not in your paycheck, so you miss it a lot less than if you had to shell out the cash after receiving it. And the regularity of your investments usually means you'll invest more than if you invest only "when I can spare the cash."
Please Note: AskNelly.com is not a Registered Investment Advisor. The "Money" section of AskNelly.com is meant only to provide information to help you understand your options. It is not advice you should necessarily act on. Actionable advice has to take into account your individual situation and should come from qualified professionals.