Are you living from paycheck to paycheck? Do you think that you cannot afford to have any extra money taken out of your paycheck? What if you were able to pay less on taxes, and save for retirement at the same time? Would you be willing to try it? If the answer is yes, great!! I get it, money is tight, however, if you try hard enough, you might just be able to find ways to put money away for your retirement. Keep reading to find out how.
Employers have the option of selecting from several types of employee pension plans to offer employees. One of the most common pension plans is the 401(k) plan. Some employers that offer the 401k plan, may also have an employer matching program. The employer matching program allows the employer to match a certain percentage of the employee’s contributed amount annually. Even if your employer does offer a 401k plan, it is not mandatory for them to offer a 401(k)-matching program. However, if the employer does have a matching program, that is like free money for you. Yes, you read correctly…free money for you!! Who does not like…free money?
If the employer offers a 401(k) plan, be sure that you understand how it works. If you do decide to participate in a 401(k) plan, there are a few things that you should know.
- The only way that you can contribute to the 401(k) plan as an employee is through payroll deductions. This means that the amount that you have chosen to contribute comes directly out of your paycheck.
- The contribution amount is “pretax”, meaning that the contribution amount to the 401(k) reduces your taxable wages. Wouldn’t it be great to have less taxes withheld from your paycheck while putting away money for your retirement? I think so!!
- Some employers have a 401(k)-match program. Think about it, if the employer has a 401(k)-matching program, as mentioned previously, that’s free money for you.
- The 401(k) plan is not like a bank account, you cannot withdraw funds whenever you want. There are specific rules that apply to withdrawals.
Free money, reduced taxes, and saving for retirement at the same time. That is sounds like a good plan. Now let us get back to you thinking that you cannot afford to contribute to a 401(k). The first question is to ask yourself if you have any extra money after you pay your bills. Initially, your answer is probably no, you do not have any extra money. However, that may not exactly be true. Do you spend money on things such as going out on the weekends with the homies or the Bffs? Are you regularly spending money on things that you do not need? If so, the answer is that you do have extra money. You just need to decide how you want to spend that extra money, hanging out on the weekends or saving for retirement. The choice is yours.
Contributing to a 401(k) is an option, and a good option at that. Think about it, if you spend $50 a week on entertainment, you could reduce the entertainment spending and contribute $25-$50 per pay period to a 401(k) plan. You would be surprised at how quickly the dollars will add up in the 401(k) plan, especially if the employer has a matching program. The good thing is that you do not even see the money. It is not like you get your paycheck and then need to write out a check. 401(k) contributions are deducted directly from your paycheck. As the saying goes, “out of sight, out of mind”. In other words, if you do not see the money, you might not miss it. If your employer offers a 401(k) plan, you really should consider enrolling in it and making contributions. Even if you must give up something else to make contributions, it will be well worth it. Remember, reduced taxes, retirement savings, and possibly free money. That is a good combination. If your employer offers a 401(k) plan, do yourself a favor, at the very least, consider contributing to it.
