When you are looking to plan for future retirement, it is essential that you are informed on all the investment opportunities at your disposal. A 401K plan is a long-term investment that is offered by companies to employees as a perk in addition to a traditional wage or salary. Many companies offer different 401K investment plans to employees. These investment plans are long-term and have both advantages and disadvantages that are attached. It can sometimes be a complicated process to decide if this investment vehicle is right for you. The best way to decide if a 401K plan fits your needs is to take a good look at both the good and the bad.
List of Advantages of a 401K
1. Tax Savings
The biggest benefit that can be gained from having a 401K can be seen through the tax savings. This is due to the fact that your money can grow in your 401K as tax-deferred. This means that while the money is growing in your 401K you are not required to pay taxes on the interest or gains that are earned. This interest or gain is not taxed until you withdraw the money from your 401K plan at a later time.
2. Simple Investment Option
The world of investing your money can be pretty complex and in some cases very risky. However, 401K plans are designed to be simple and have a very minimized risk. Many of the 401K investment options are normally very conservative and might not gain at a high rate, but you will also not lose at a high rate. This is what some people are looking from in their investment plan.
List of Disadvantages of a 401K
1. Difficult to Access
Even though this investment is often seen as safe and ideal for people looking to plan for the future, there are a few negatives you should be aware of. Access is something that is considered to be a big downside, when it comes to having your money tied up in a 401K. It is technically your money, but you do not always have easy access to it. There are normally many restrictions and you can even be penalized with loss of funds by trying to take money out of your 401 plan early. This little access in addition to the small growth of 401K plans are what keep some people from choosing this investment opportunity. The choice to have a 401K plan is normally based on employer.