DON'T EVEN THINK OF PUTTING MONEY IN THE BANK!!
Feb 04 '00
A 401K is FREE money! Run, don't walk AWAY from your bank and put as much money as you can (usually 15% or so) into a 401K. First of all, a 401K is set up through your employer and accepts before tax dollars. This means you'll get to put off paying taxes on this money (and lower your tax bill NOW) and any interest that accumulates with your contributions until much later in life (a good thing when you consider the time value of money).
Also, many employers match a portion of your contribution (which = even more FREE money!). This makes the 401K even more attractive. Keep in mind you can invest your 401K money in stocks, and mutual funds (who's long term returns are many times that of a savings account)
Savings/checking accounts however, usually pay pathetically low interest (if any at all). These accounts accept after tax dollars, which means you'll have already paid taxes on this money (a bad thing). These accounts
should only be used for the minimum amount of cash you'll need from month to month.
If you have money accumulating in a savings/checking account, I recommend you investigate investing in a Roth IRA. The Roth will allow you to invest your after tax dollars in stocks/mutual funds and enjoy TAX FREE accumulation AND disbursement (seems too good to be true, huh).
Keep in mind both the 401K and IRA are intended to be retirement vehicles. If you will need to use your cash before you retire, you may want to invest in a mutual fund directly or open on online trading account to invest in stocks. The Roth IRA will allow you to withdrawal before retirement for a few reasons (first homes, medical expenses, education, etc.)
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