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5 benefits of a 401(k) plan


Man and his dog taking a rest from walking, sitting by the river, enjoying the view and sunset

Achieving your retirement dreams won’t happen by accident. In order to live the retirement lifestyle you dream about, you must start saving. Your company’s retirement plan can be one of the best tools available to help you build your financial future, especially if you are a new investor. For many, putting aside even a small percentage of your paycheck may feel like it will make a large impact to your financial situation when you are first deciding on a realistic contribution rate.

Here are 5 benefits of most traditional 401(k) plans:

1. Tax Advantages

Contributions to a traditional 401(k) are taken directly out of your paycheck before federal income taxes are withheld. Because the contributions are pre-tax, it lowers your total taxable income which means you might owe less in income taxes, regardless of whether you itemize or take the standard deduction. It may even put you in a lower tax bracket! Your pre-tax contributions are then tax-deferred until you choose to withdraw them in retirement. The premise is that in retirement you’ll likely be in a lower tax bracket than if you were taxed on the money now.

2. You are in Control

You can contribute as much or as little as you want to your account (subject to plan and IRS limits). Plus, you have the flexibility to change your contribution levels at any time (subject to plan limits) dependent on your situation.

3. Time is on Your Side

The earlier you start investing, the more time your money has to grow. One of the biggest advantages of investing in a 401(k) early is compound interest. Compound interest is when you earn interest on the principal amount of an investment plus any accumulated interest, i.e. it’s when you earn interest on interest. Compounding can have a big impact on long-term investment and should be considered a powerful ally when it comes to saving for retirement. It may not seem like much looking at your 401(k) in the early days, but compounding can really add up.

4. You Can Take it with You

Even if you change jobs, the money you’ve contributed to your 401(k) and its earnings belong to you. Depending on your plan type, there are different ways to keep your retirement plan invested and growing on a tax-deferred basis. If you’ve left an employer, but still have an old 401(k) with them, find out what your options are for leaving it in plan or moving it somewhere else.

5. Easy Payroll Deductions

Starting to save early and contributing consistently is essential to preparing for retirement, even if it feels lightyears away. With a 401(k), you can make automatic contributions directly from your paycheck. It makes saving a simple and effortless process. And, since the deduction is taken before you get paid, you won’t miss the money. When it does cross your mind, you should feel great that you’re taking the right steps to secure your future!

A comfortable retirement requires planning. The good news is that sound retirement planning doesn’t have to be complicated. By joining your company’s retirement plan, you can take advantage of a wide range of benefits to help you take control of your future – today!

Certain restrictions and conditions may apply to different plans. When withdrawing money from your plan, carefully consider the options available to you including rolling your money over to another qualified account to avoid potential tax penalties.

Please note: Financial advice should be tailored to individual circumstances and the content of this article should not be viewed as recommendations. This article is not an endorsement of any particular product, service or organization; nor is it intended to provide financial, tax or legal advice. It is intended to promote awareness and is for educational purposes only. The specific applications and services noted are not necessarily endorsed by John Hancock or any of its affiliated businesses.

Advisory services offered through John Hancock Personal Financial Services, LLC, an SEC Registered Investment Adviser. Boston, MA 02116. 888-955-5432.

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