A 401(k) plan is a employer-supported savings account for your retirement. A large number of U.S. companies offer these funds. Enrollment is optional, and you may choose to not participate. However, it is well worth researching the benefits before making that decision. In most instances, your company will match funds for your 401(k) account up to a certain dollar amount each year. A number of different plans exist, so ask specific questions about the plan you may have. If your employer does match contributions, your company’s 401(k) offers a significant benefit for your financial future.
Contributions levels may vary per year. For instance, in 2011, levels stood at $16,500. In 2012, that level was set at $17,000; in 2013, at $17,500; and in 2014, at $17,500.
Once your 401(k) account is funded, you need to choose securities in which to invest. Most often, you will choose from among variations of mutual funds. In some cases, you may choose stock in your own company. It is best to diversify. Make sure your money is invested in more than one location. Choose mutual funds with good potential growth patterns. Let all your investments work in harmony to build your retirement cache. Closer to retirement, you might want to change a previously aggressive investment strategy to increase contribution to stable, secure bonds.
Even if the company for which you work does not offer a matching contribution, it may still be wise to invest in a 401(k). The account allows your funds to grow tax-deferred. Most people consider their 401(k) plan to be a retirement cushion, allowing them to travel and make plans without worrying about a need for employment after retirement. But a 401(k) is vital for another kind of safety cushion: health insurance coverage.
The cost of health care can be crippling, and expenses escalate each year. If you contribute to your plan diligently during the years you work, your 401(k) savings will allow you more than enough funds to keep the health insurance coverage you need. Earmark part of each year’s contributions specifically for health care and protect your future health.