Investing for retirement is something on the minds of many working Americans today, and with good reason – it is one of the most important investments you will ever make. A 401k investing retirement plan is an account funded by pre-tax payroll deductions, stocks, bonds, mutual funds, or other assets. The significant thing about a 401k is that retirement funds are not taxed until they are withdrawn, giving investors the opportunity to continue to invest for retirement without having to worry about taxes until they are ready to start using the funds.
Many experts recommend beginning 401k investing as soon as possible, and with that in mind, let’s take a look at some of the best practices for 401k investing today.
One of the merits of participating in a 401k investing plan offered by your employer is that many workplaces will actually match your contributions up to a certain amount. Since this is basically like having free money put into your investment account, it makes sense to make the most of this opportunity as soon as you are eligible. Employer match varies from one company to the next, but it is not uncommon for some workplaces to offer 50 cents on the dollar or even dollar for dollar up to 6% of your income. Even if you are unable to make the maximum contribution when you invest for retirement, try to plan on putting in at least enough to qualify for the matching funds option.
Expect Ups and Downs
It is always a good idea to keep an eye on your investments, but you don’t have to worry as much about any lulls in your 401k investing; it’s natural for the investment market to experience ups and downs, but when you invest for retirement, you are making a long-term investment that is less susceptible to market fluctuations. As long as you see an overall upward trend in your investments, then your long-term investment is working well. Above all, don’t try to bail out by closing your account early. One of the worst things you can do when you invest for retirement is withdraw your funds before you reach age 59 ½ because early withdrawal penalties are extremely expensive. In fact, all early withdrawals are subject to income tax on top of a 10% premature disbursement penalty, leaving you with significantly less money than what you started with.
When you invest for retirement, you’re investing for your future. Do it right by ensuring that you are well-informed and adhering to the best investment strategies possible. Check out our other 401k investing tips at InvestorPlace today!