401(k): Flexibility Where it Matters Most
When it comes to saving for retirement, 401(k) accounts are among the most popular options available. These plans offer employees the opportunity to put a portion of their earnings aside, tax-free, to invest in a variety of mutual funds until they reach retirement age.
These retirement accounts are also known for their flexibility. Investing is optional and employees, as well as employers, can modify the exact details of the investments. Let’s take a look at what makes a 401(k) account so flexible.
A 401(k) offers a variety of contribution options to the individual investing in the account. For starters, contributing to a 401(k) is completely optional, even though it’s an employer-sponsored account.
Beyond the option to opt-out, employees can choose how much to contribute. Some may begin with a small percentage of their income, slowly increasing their contributions over time. Others may choose to contribute up to their employer’s match, to take full advantage of the additional retirement savings.
Individuals with more aggressive saving plans can opt to contribute up to the maximum yearly limit, which is $19,000 for 2019. Those 50 and over at the end of the tax year can take advantage of catch-up contributions, adding $6,000 for a total of $25,000 per year.
A 401(k) account also offers some flexibility in how money is invested. For the most part, employer-sponsored 401(k) accounts offer an option called a target-date fund. A target-date fund is automized, smart investing personalized to the account holder’s retirement date. Investments are generally more aggressive to start, becoming more conservative as the investor grows older.
If a 401(k) plan doesn’t offer a target date, there are likely other customization options. For example, many plans include the option for aggressive or conservative investing, or even a mix of the two.
Flexibility for Lifestyle Changes
Lastly, 401(k) retirement plans offer enough flexibility to account for lifestyle changes. Individuals can increase or decrease contributions at open enrollment each year to account for changes in income.
In case of hardships, there are options to take out small loans and repay them. However, this is only advisable if all other options have been exhausted.
Ultimately, a 401(k) is a great option for those whose employers offer the retirement plan. With a commitment to consistently saving for the future, it’s possible to reach retirement goals.
~Here’s to Your Financial Health!