A 401k is a retirement savings plan which allows you to put a percentage of your earned income into it before paying taxes. Your employer will normally contribute to your 401k by matching a percentage of whatever you put into it (that's free money). You can then invest this saving into different types of investments such as stock, bonds, and mutual funds. If you start saving for retirement early in life, you will increase your chances of having enough money to provide for yourself during your retirement years. Below is a list of pro and cons to help you decide whether or not investing in a 401k is right for you.
Pros
- You can contribute up to $17,500 to your 401k annually if your 49 years old or younger, and up to $23,000 annually if your 50 or older
- Your contributions nor your investment earnings will be taxed until you withdraw them from your 401k.
- Most employers will match up to 6% of your yearly salary (that is free money).
- In the event of a financial crisis or an emergency, you can borrow from your 401k without having to pay an early withdrawal fee.
Cons
- When you begin withdrawing your money from your 401k, it will be taxed plus you will have to pay a 10% penalty if you withdraw before age 59 1/2.
Edited by Reginald Forest
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