Participating in your employer’s 401(k) plan is a great long-term way to prepare for retirement. Approximately 60 million Americans contribute funds to their accounts each paycheck. If you’re interested in growing your own retirement account, use the tips below to learn how to maximize your 401(k) balance.
How does a 401(k) account work?
When employees sign up for a 401(k), they agree to deposit a percentage of each paycheck directly into an investment account. Depending on plan options, the employer may match part or all of that contribution.
In a traditional 401(k), your investments grow tax-deferred due to special incentive programs from the federal government. You then pay your deferred taxes as you withdraw your money in retirement. However, if you choose a Roth 401(k), the accounts are funded with after-tax money that you can withdraw tax-free once you reach retirement age.
How does a 401(k) earn money?
Your contributions are invested according to your choices from the options your employer offers. The investments can range from low to high risk, and you should seek the advice of a financial advisor when necessary.
Can you withdraw from your account?
You can withdraw money from your 401(k) before age 59½; however, early withdrawals often come with penalties and tax consequences.
Maximize your balance by investing early
You must be at least 21 years old, worked at least a year at your company, and provided a minimum of 1,000 hours of service to your employer to qualify for a 401(k) plan. The sooner you start contributing, the longer you will have for your investments to grow.
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