Every Dollar Matters
When it comes to retirement plans the 401k is a great choice if it is available to you. For one, companies typically will match your contributions up to a certain percentage. You also can elect to have you 401k contributions deducted pre-tax. All things considered the 401k is a great choice.
Being able to elect your contributions pre-tax can save the amount of taxes you pay. For example, if you are single, make $40,000 annually and elect to put 6% into a 401k you will save $600 in federal income tax withholding. On a $2400 investment, $600 is a nice chunk of change. Even if your investment does not make a dime you will have made 25% in tax savings! The actual $2400 investment really only costs you $1800.
Many companies will match your contribution percentage up to a certain percentage or amount. This is free money! Your minimum 401k contribution should be no less than the minimum match. If your company matches up to 5%, this equates to $1500 for an annual income of $30,000.
For 2010 amd 2009 the max contribution is $16,500. If you are 50 or older you can make an additional contribution of up to $5500 per year.
That depends on you. The decision is ultimately yours. If you are 15 or more years away from retirement you might want to consider placing a larger percentage of our portfolio into stock funds. Diversify your portfolio. Take on as much risk as you are comfortable with.
Don't do it. This is your retirement account!
Unless you are in dire straits do not touch your retirement accounts!!! If you make a withdrawal before age 59-1/2 in addition to owing income taxes you will owe an additional 10% early withdrawal penalty.
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