Finance Friday - The 401k Made Simple

Ever wondered what a 401k is, and if you need one?

View this post on Instagram

This week we go over the basics of a 401k and its limitations and benefits. #arielstarkerealtor #eastcobb #eastcobbga #financefriday #financetips #personalfinance #firsttimehomebuyer #realestate #realestatetips @harrynormaneastcobb #hnrealtors

A post shared by Ariel Starke, REALTOR® (@arielstarke) on Feb 14, 2020 at 2:51pm PST

Simply put, a 401k is a retirement plan through your employer. The money is contributed from your salary into your retirement account each month.

Benefits of a 401k:

1. Contributions are pre-tax.

2. Employers often match what you contribute, up to a certain percentage. So this means, if you contribute 3% and you have employer matching, they’ll also contribute 3%! This is seriously just free money you can take advantage of by maximizing how much you put in each month within the matching limitations.

3. Your savings will grow with compounding interest. That means interest builds not only on the principal/ base # you deposit, but you also get interest ON the interest!

Limitations of a 401k:

1. There is a maximum yearly amount you can contribute ($19,500 for the year 2020).

2. The money can’t be withdrawn before you are 59 1/2 unless you pay a tax penalty (there are a few exceptions; ask your HR representative).

How to get a 401k:

Simply ask your HR department!

Independent contractors and those who are self-employed may need to use another method of retirement savings such as an IRA or Solo401k.

I hope this was helpful to you! Happy Valentine’s Day!