Most people do not have adequate savings to live out their retirement years as they would like. If you are the exception and are serious about taking steps to finance your retirement years, you would do well to take advantage of the 401(k) plan that may be offered at your place of employment.
With these retirement savings plans you make contributions with pretax earnings. So, your taxable income is reduced and you pay less income tax along the way. (Although it should be noted that you have to pay taxes when you start to withdraw funds.)
Many employers will match your contributions up to a certain amount. This is something that you definitely want to take advantage of because there are few instances in life when someone is offering to give you money that they don’t have to give.
One question that many people have about 401(k) accounts involves layoffs. What happens if you lose your job?
If you become separated from your employer, you have to decide what you want to do with your account. In many cases you can just leave it alone and do nothing for the time being, but you may get less access to service and find yourself paying increased costs for account administration.
Cashing it out is an option but, depending on your age, you might have to pay a 10% penalty in addition to the 20% tax that would be levied by the IRS.
The third choice would be to roll it over into an individual retirement account or another 401(k) plan.
The best way to proceed with regard to preparing for retirement is to develop a good relationship with an expert early on. Once you establish that connection your attorney will always be available to answer questions as they arise.
Larry Parman
Author, President and Founding Attorney
Parman & Easterday
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