A Beginner’s Guide to Understanding 401(k)s

A Beginner’s Guide to Understanding 401(k)s

A Beginner’s Guide to Understanding 401(k)s

  • Your 401k is a retirement plan that includes products that you can pick yourself.
  • At Jacobs Financial, we work with you to understand your 401k options and take additional steps to promote a successful retirement.

Whether you signed up for an employee plan without knowing the details or you’re looking to get more out of your retirement strategy, we’ve got the answers you need in Grandville, MI. Discuss 401 benefits, plan features, and more with Jacobs Financial’s financial advisor to retire the right way.

401k Basics

One common employee benefit is a retirement fund, usually a 401k. This is an employer-sponsored account that allows you to invest in a whole host of investment opportunities to save for retirement.

401k Plan Definition

Typically, you can choose a set percentage of your paycheck to be automatically removed from each paycheck. This percentage of your pre-tax salary is invested in one or more of these types of investments:

  • Bonds
  • Stocks
  • Mutual funds

The specifics of your 401k plan can vary. Many plans offer matching contributions from your employer up to a set amount. Other plans offer tax-free savings. Either of these plan features offer significant savings benefits.

Benefits of a 401k Plan

For most employees, a 401k plan is a competitive benefit and a great way to start saving for retirement. Here are some benefits that are commonly included in an employer-sponsored plan:

  • Creditor shelter: Your savings in a 401k are safe from creditors. As long as your plan qualifies for the Employee Retirement Income Security Act of 1974, you won’t have to worry about a creditor removing funds from this form of retirement account.
  • Tax breaks: As long as you wait until the approved retirement age, which is typically 59.5 years old, you won’t have to pay taxes until you withdraw your savings. This means that you don’t have to count your contributions as income and your savings grow tax-deferred.
  • Employer-matched savings: Many employers not only offer 401k savings plans but also offer to match a dollar or 50 cents for every dollar you save, up to a set percentage of your salary.

401k FAQs

You probably have questions about how your 401k works. Here are some answers to common questions about this type of plan. For more personalized answers, schedule a meeting with one of our qualified financial advisors in Grandville, MI.

How Much Should I Contribute to My 401k?

The maximum contribution to 401k plans is set by the IRS every year. This contribution is set at $19,500 for 2021, though individuals over 50 can contribute an additional amount. Employers can set their own cap below that amount, particularly for matching savings.

Where Does My Investment Go When I Switch Jobs?

Because plans are tied to employers, you typically can’t keep your plan when you leave your place of employment. There are, however, several options to consider. The most common choice is a 401k rollover, which transfers your funds to a different 401k or an IRA.

Can I Take Money Out of My 401k?

You can also choose to cash out your 401k early, but this results in numerous penalties, taxes, and fees. Taking out your penny before you reach retirement age is rarely advised.

Learn More With Jacobs Financial

There are numerous ways to plan for retirement in Grandville, MI. Schedule a meeting today with an advisor at Jacobs Financial to sort out your retirement planning and get the most out of your 401k plan.

Image Credit: TimeShops/ shutterstock

Leave a Comment

Ready to Take The Next Step?

For more information about any of the products and services listed here, schedule a meeting today or register to attend a seminar.

Or give us a call at 616.622.4654