A 401k is a very powerful tool that allows the average American save money up for their retirement. In fact there are 5 reasons why investing on 401k plans can be the best options for most people.
Before we get into those reasons let us look at the question, what is a 401k? This is simply a retirement plan where employees can save a portion of their income and have it grow tax free until retirement. This plan has helped out a lot of people because it does come with a few great benefits.
1. Tax Free
The best part about the plan is that it comes with a tax free rate of return. You do have to eventually pay taxes on it when you take the money out, but as long as it is in the account your money can enjoy a tax free growth which can add up over time.
2. Employers May Add Money
Many employers will match your deposits or give you some sort of insensitive for saving up for retirement. If your employer matches you 1 for 1 and you invest $500 into your account your employer would deposit another $500, it is free money.
3. Average Stock Market Return
The yearly average stock market return is around 10% that already beats many other forms of investing. Combining this with the free money you could receive and the tax free growth it has a good potential.
4. Managed Safely
A 401k can make a nice safety net because the money inside it is normally managed with caution. So if you have a 401k it will allow you to always have some money around just in case you find yourself in an emergency situation and you simply need to use it.
5. Hardship Withdrawals
There are a lot of hardship rules that can let you take some money out during certain emergency situations. You can also use the 401k hardship rules to get into a first home or even pay off some college loans without getting hit by the normal 10% penalty that comes with an early 401k withdrawal.
