Considering opting out of the 401(k) Plan?

You always have the option to opt out and stop contributing to your 401(k). However, see below for some things to consider before making the change: 

  • Unlike normal savings or investment accounts, you pay taxes on the money you’re saving and on any earnings gained. In contrast, your pre-tax 401(k) contributions are taken from your paycheck before taxes, and any earnings will grow tax-deferred.
  • With other investment accounts, you must pay taxes on any capital gains you earn for that year. With a 401(k), you won’t have to pay taxes on those gains until you receive distributions during retirement.
  • 401(k) contributions can reduce your taxable income and lower the amount of income taxes you pay in the year you contribute to the plan. 
  • Your 401(k) account assets are protected in the event of bankruptcy or judgment creditors.
  • 401(k)’s have higher contribution limits than IRAs. 
  • Your employer may offer an employer match or profit sharing contributions that won’t be taxed until you distribute. 

 

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