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One of the most popular retirement plans in the US is the 401k. It is an excellent choice for anyone that has a job and is offered an employer sponsored plan. This site is dedicated to teaching you everything you need to know about 401k planning, investments, and best practices.

The simple fact is if your employer provides you with a 401k, and matches your contributions you would be foolish not to invest the maximum allowed to receive the match every pay period. Your employer is giving you free money to help you reach your retirement goals. Even if you are not concerned about retirement quite yet, there are still a wide variety of other benefits to investing the maximum.

401k Tax Incentives

Your contributions into your 401k are made with pre-tax money. In other words, you do not pay taxes on the contributions you make towards your retirement account. In addition, you do not pay taxes on the contributions your employer makes either until you go to use the funds after you retire. This will give you a large tax savings every year. By taking the 401k contributions off the top, your taxable income shrinks and you save money.

Increased Savings

If your employer matches your 401k contributions even only 50%, you are still receiving $1.50 for every $1.00 you contribute. There is no difference between this and someone telling you that they will give you $15 for every $10 you give them, and they will give it to you immediately! Obviously, all of us would take this deal all day long for as much money as we can possibly scrape together.

Interest Savings

For most of us, we spend a fortune in interest payments for our large purchases over the course of our lives. If we have a 401k, most plans allow for loans. We can borrow money from ourselves and pay it back with interest to ourselves! This helps us in two different ways; the interest rate we pay ourselves is smaller than most banks charge, so our monthly payment is smaller. In addition, the money we pay in interest goes right back into our account so we keep the money and do not give it to the bank.

Therefore, if a typical interest payment is $4,000 on a $25,000 five year loan, this can also be added to our bottom line. Just by doing this simple transaction we save $800 per year in interest payments and have a lower monthly payment for a new car.

This same logic can also be used for bigger and smaller items. If the 401k has reasonable processing fees, you can use money for your annual vacation and save on credit card interest, and for some mature accounts you can probably do this same thing with a house!

As you can see there are many benefits to having a 401k even beyond savings for retirement. You get free money from your employer, get to save for retirement tax free, and are even able to finance your own purchases with your own money.