November 13, 2021

3 Things to Know Before Starting a 401(k)

Learn about the benefits of an employer-sponsored retirement program and how to start saving today.

It is never too early to start planning for retirement, especially since the trend towards longer life expectancies is increasing the average retirement age past 65. If your employer is offering a 401(k) plan, consider taking advantage of it. However, to get the most out of a 401(k), research the plan that fits your needs the best.

How can a 401(k) benefit you?

An employer-sponsored 401(k) can help you save more money for retirement by adding contributions that come straight out of your paycheck that are only taxed upon withdrawal. Other benefits of 401(k) plans can include employer contribution matches, protection of funds from creditors, and company profit sharing. Even if you begin a 401(k) through one employer and change jobs later, you can move the savings with you to your next account.

Drawbacks of a 401(k)

The catch of a 401(k) is the penalty for withdrawing funds before reaching the minimum required retirement age. By taking out funds from your account early, a 10% fee is charged along with any taxes that apply. Since you cannot access your funds until retirement age, you can’t control how your money is invested until then. Also, watch out for the possibility of annual fees or a loss of value due to a market downturn.

When is the best time to start saving?

Depending on your career status, age, and current savings, it is always a good idea to start saving for retirement as soon as possible. Due to compound interest building up value in your account, the longer term your investment, the better. Another advantage of investing in a 401(k) is the ability to change your contribution amount over time.

Visit your local Citizens First Bank to find out how you can begin planning for your future financial goals today. The experienced team at Citizens First Bank can help you select the best strategy to save for the short term or retirement.