In 2016, about 55 million Americans had an active 401(k) and as of 2018, these plans held $5.6 trillion in assets[1].  It’s no surprise that many employees are choosing to save for retirement by making contributions to an employer-sponsored 401(k) plan, as there are several advantages to utilizing this savings vehicle.

 

1. Tax-Deferment 

One of the more well-known benefits of a 401(k) plan is the ability to make a contribution on a pre-tax basis.  Typically, funds are automatically moved to your 401(k) through a payroll deduction, decreasing the total amount of your taxable income. When you eventually withdraw these funds, during your retirement years, you will be required to pay taxes on the distribution.  However, you will likely be in a lower tax bracket than you were during your working years, ultimately saving you more of your hard-earned money.

 

2. Matching Contributions

Many employers offer a matching contribution up to a certain dollar amount or percentage of an employee’s salary.  Essentially, as an employee, you are being given the opportunity to invest “free” money, helping you grow your 401(k) more quickly.  If your employer offers this perk, try your best to take full advantage by contributing at least enough to reach the maximum match.  Don’t make the mistake of leaving money on the table!  

3. Payroll Deductions

The ability to have funds automatically moved to your 401(k) through payroll deductions is an incredible benefit to employees.  Because the money never makes it to your paycheck, you are much less likely to spend it and instead, can let it work for you as an investment.  Offering the option for automatic contributions is just one way that employers can help their employees succeed when it comes to saving for retirement.  

4. Asset Protection

Most employer-sponsored 401(k) plans comply with the Employee Retirement Income Security Act (ERISA).  ERISA’s main goal is to set standards for most retirement and health plans and to “provide protection for individuals in these plans.”[2]  This means that should any financial trouble arise, the assets in your 401(k) plan will be protected from creditors. If needed, the Human Resources department or 401(k) Administrator at your company will have more information regarding your specific plan and if it meets ERISA requirements.  

5. Professional Advice

Investing in a 401(k) is a great starting point to begin working with a financial professional.  Your employer may offer access to a professional who can assist you with your 401(k) plan, however it may be beneficial to outsource to a financial advisor.  He or she can not only help you with your 401(k) but can also help you focus on other investment opportunities and create a more complete personalized plan for the future. Howard Capital Management, Inc. (HCM) is proud to offer the 401(k) Optimizer®, an easy, automated online tool to help you manage your retirement investments (401(k), 403(b) or 457). Using your risk tolerance level and long-term goals, the 401(k) Optimizer® generates personal portfolio allocation recommendations and recommends what to buy, when to buy and when to sell based on your plan’s investment options and market fluctuations.   Contact Howard Capital Management, Inc. A properly managed 401(k) can help maximize its growth potential and give you peace of mind about your retirement plan. The earlier you begin, the greater your return can be in the long-run.  In addition, a 401(k) can be a great stepping stone into other types of investments, allowing you to diversify your portfolio and balance your risk. By planning for your financial future now, you can make your retirement an exciting and smooth transition. Learn more about the 401(k) Optimizer® and have your questions answered by contacting Howard Capital Management, Inc. (HCM) to find an advisor in your area. [1] https://www.ici.org/policy/retirement/plan/401k/faqs_401k [2] https://www.dol.gov/general/topic/health-plans/erisa