What is a 401(k)?
Learn about 401(k) plans, their benefits in retirement planning, and how they can impact your long-term financial goals.
A 401(k) plan is an employer-sponsored retirement savings program, providing a tax-advantaged way for employees to save for retirement.
Key Features of a 401(k) Plan
Tax Benefits
- Pre-Tax Contributions: Reduce your taxable income.
- Tax-Deferred Growth: Investments grow without immediate tax implications.
Employer Match
Many employers match a portion of employee contributions, enhancing retirement savings.
Example: Maximizing Your 401(k)
Emily, earning $55,000 annually, contributes 6% to her 401(k). Her employer offers a 50% match. Here’s her potential growth:
- Annual Employee Contribution: $3,300
- Annual Employer Match: $1,650
- Total Annual Contribution: $4,950
- Growth Over Time: With a 7% annual growth rate, Emily’s savings could reach approximately $40,611.72 in 5 years, $97,571.76 in 10 years, and $667,082.07 in 30 years.
Contribution Limits for 2024
The IRS sets annual contribution limits for 401(k) plans. In 2024, the limit is $23,000 for individuals under 50, with an additional $7,500 catch-up contribution for those 50 and over, totaling $30,500.
Plan for Retirement with ProjectionLab
A 401(k) is an effective way to build retirement savings, offering tax benefits and the potential for employer matching. ProjectionLab enables you to integrate your 401(k) plan into your broader financial plan. By assessing your specific retirement goals and current financial situation, ProjectionLab can help you determine the optimal contribution rates, investment choices, and strategies for maximizing employer matches. Plan your retirement with confidence and precision at ProjectionLab.
