401k

Planning for the financial aspect of your retirement can be stressful and may seem near impossible, especially when meeting every day expenses can seem challenging. There are many factors to consider about your retirement plan and how much money you realistically may need. Although your expenses may be a certain amount today, there are many possible factors that can instantly influence and shape your financial needs tomorrow. Certain changes that you should consider when saving for your retirement include health changes, medical expenses and housing changes.

The government and employers alike realize the importance of having some sort of retirement plan in place, otherwise the years of service that an employee puts in can still lead to a dire future in retirement without having adequate financial resources in place. There are a variety of different retirement savings plans available through being an employee that usually matches or provide some sort of financial incentive for employees to deduct a portion of their paycheck into a retirement savings pension.

A 401k plan is type of pension plan that is used in order to help make retirement possible by allocating money from one’s paycheck and having the employer contribute to the pension as well. Retirement savings are possibly matched by the employer of what the employee is deducted before taxation. This is a great advantage of a 401k because over time the money that you have invested and tucked aside in your pension will be subject to compound interest.

The term 401k refers to a section that is found in the Internal Revenue Code and is subject to the terms and conditions that are set out about how much can be invested, the rates of applicable taxation and any penalties that one may incur if they would like to access their pension before the age of 59.5, usually used for expenses that are defied as hardship by the Internal Revenue Code. Common reasons that are defined as hardship include having to pay for medical expenses, preventing home foreclosure and unexpected funeral expenses. Money that is taken out before the age of 59.5 will be subjected to some sort of penalty, usually amounting in a deduction of 10%. Under law as recently of 2014, the total dollar amount that can be contributed before taxes is $17,500.

Contributing to a 401k pension is a very responsible way to help plan and prepare for your retirement future, while taking advantage of your employer’s contributions.