For most Americans, retirement is a sought-after dream that offers the ability to break free from financial worries and instead focus on enjoying the world around them. It could look like buying a condo somewhere sunny or just kicking your feet up on a reclining chair to soak in some relaxation. No matter what retirement looks like for you, it’s necessary to plan ahead of time to ensure that your retirement savings align with your dreams and goals.
National 401(k) Day, September 5th, serves as an opportunity to check your retirement reserves and get started on planning an ideal future. While most employers offer a 401(k) plan, less than half of Americans choose to invest. It might seem daunting to set aside cash from your paycheck, because most individuals want their full check upfront, but investing in a 401(k) plan means investing in your future self.
History of 401(k) Day
The 401(k) plan stemmed from the Revenue Act of 1978. An arrangement was made to allow employees to postpone compensation from stock options and bonuses without immediate taxation. This condition was listed in Section 401(k) of the Internal Revenue Code, which was designed to limit tax-advantaged profit-sharing plans that, in return, would result in benefiting executives. However, Ted Benna, a benefits consultant, saw the potential of this provision to create expansive retirement savings for employees. In 1980, Benna implemented the first 401(k) plan for his company, The Johnson Companies.
In 1996, National 401(k) day was established by the Profit Sharing/401(k) Council of America. The holiday was created to raise awareness of retirement savings education and motivate Americans to start their 401(k) plans. This day takes place on the Friday after Labor Day intentionally so that individuals can start the week with Labor Day and end the week with retirement.
Why You Should Invest in Your 401(k)
There are several benefits to investing in your 401(k), including tax advantages, employer matching contributions, and compound interest. Tax benefits result from your 401(k) because the contributions are made pre-tax, basically meaning they reduce your annual taxable income. This results in your money becoming tax-deferred until it is withdrawn in retirement, potentially reducing your overall tax burden.
Several employers are willing to match contributions to your 401(k). In other terms, employers offer free money so that you’re able to save up for your future while still getting paid a percentage for your contribution! If your employer offers this opportunity and you decide to decline, it’s almost like declining an extra amount of cash.
Compound interest is another benefit of investing in a 401(k). You earn interest on the initial investment in addition to the interest that accrues over time, ultimately increasing your savings substantially. The earlier you choose to invest in your 401(k), the more you can benefit from compound interest.
Lastly, your 401 (k) protects you from early withdrawal. Some may see having penalties for withdrawing before age 59 ½ as a downside; however, it helps you refrain from using the money for anything other than securing your future. It can assist you in resisting the temptation to take from your retirement savings for non-emergency expenses, ensuring that you stay on track for a secure and blissful retirement.
KCCU values each and every one of its members and their long-term goals for retirement. Along with deciding to invest in a 401(k) account, KCCU offers individual retirement accounts. An individual retirement account (IRA) is a type of savings account designed to help you save for retirement and offers tax advantages.
KCCU offers several options for IRA accounts to meet your needs, including both Traditional IRA and Roth IRA accounts. Additionally, we offer an IRA Certificate Account where you get the tax advantages of a traditional IRAs with the added benefit of higher returns from a Certificate Account.
Investing in a 401(k) account can seem intimidating or unnecessary for some, but the bottom line is that putting aside some money from your paycheck will give your retired self stability and peace. National 401(k) Day is your friendly reminder that paving the way for a financially secure destiny can start in the present; your future self will thank you.
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