Uncle Sam Loves Savings Accounts!
Sep 04 '00
This is such a simple decision for a worker. Choose the 401K plan each and every time. It is not even something to ponder. Under all circumstances, you should put the maximum allowed in your 401K plan which your employee will match.
I will now list the many, many reasons why the 401K plan is much more advantageous for you.
1) A numerical example. Let's look at a hypothetical situation with some numbers. Let's say I make one hundred dollars a week. My employer has a plan in which he or she will match the first 6% of my salary ( which you will barely notice as it is before taxes so after taxes it really is only about 4% or 1/25 of your salary ). The rate of the match is at "1 for 2". That is, for every dollar I put in he will match fifty cents.
So I can put six dollars in my 401K in my hypothetical situation. The employer gives me three free dollars for a total of nine. If I put this in the savings account at the bank I would have six dollars saved. Let's think nine (401K) versus six ( the bank ). 401k is already ahead.
2) Taking it a step further, my bank has a pathetic two percent interest rate on the savings account. Those six dollars will earn 0.12 cents a year, which will be taxed at about fourty percent for those of in New York, considering state and city taxes ( By the way congratulations to all of you in Texas and Florida and other states who are lucky not having to pay state and/or city taxes. New York the most taxed place in America... but I digress ).
My 401K plan is invested in mutual funds and the stock market so it earns about 10 percent a year on average if you look at the history of the marker. My nine dollars is now worth $9.90. So now we have about $6.08 (bank) versus $9.90 (401k). I see the gap widening further and if you project over many years it grows more quickly.
3) I bet you are saying but you eventually have to pay taxes on the 401K , right. True, but by the time you have retired and are eligible to touch your 401K account ( age 59 1/2 ), you will likely be in a lower tax bracket, lowering your tax burden even further.
4) But I need the money now. No problem with the 401K. You are eligible to take loans from the 401K and you can also use the money for the purchase of a home or your child's education. Its' advantages keep getting better and better.
5) 401K encourages saving. If the money was in the bank, how tempted would you be to spend it on the new coat? The 401K is a forced savings plan in a way but its' positives make it easy to lock up your money in my opinion.
6) 401K plans allows you to control risk of investments. If you feel more comfortable in a money market fund, the 401K allows you to invest in that. If aggressive tech funds are your flavor, that can be had as well.
7) 401K plans allow you to plan for the future. They are the perfect tool to use to finance a child's education or to save for your retirement or to finance that first house.
In conclusion, pick the 401K and max it out up to your employer's match at the least ( free money! ) and up to the max allowed by the plan if you can.
 |
|
|
|
|
|
|
Epinions.com ID:
roynyr
|
 - Top 1000 |
|
Member: Roy
Location: About a foot away from the keyboard
Reviews written: 303
Trusted by: 151 members
About Me:
Update 2/22/09 - I have written my 300th review!!
GAME ON!
Huge NY Rangers fan!
|
|
|
© 1999-2009 Shopping.com, Inc.