Reasons to save in a 401k or similar employer-sponsored plan
October 29, 2018
Investing in your employer sponsored retirement plan may provide an opportunity for savings.
Excuses, excuses, excuses
Pay yourself to save
If you decide to invest, doing so with an employer-sponsored plan actually may keep more money in your pocket today. Please note that distributions will be taxed as ordinary income when distributed and are subject to any tax penalties that may apply. Consider the chart below showing the difference between investing with a plan versus investing outside a plan.
Youth is on your side
Note: This hypothetical illustration assumes a biweekly savings of $92 – or six percent of pay – equal to $2,400 per year and a federal tax rate of 28 percent and is for demonstration purposes only. It is not intended to (1) serve as financial advice or as a primary basis for your investment decisions and (2) imply the performance of any specific security. Before-tax contributions into tax-deferred investments are subject to Internal Revenue Code limits. Taxes are generally due upon withdrawal and early withdrawal penalties will apply to withdrawals taken before age 59½, unless an IRS exception applies. Your employer may offer you a choice among retirement accounts qualifying for tax deferral. Your local Voya representative can explain the benefits, features and costs of each. You should consult with an advisor when you consider your alternatives or make tax-related decisions. Legal and tax advice are not offered by Voya and its representatives.
Compounding is a multiplier effect. Consider Larry and Susan:
Note: This hypothetical illustration assumes each account earns an annual rate of return of 8 percent and is for demonstration purposes only. It is not guaranteed and not based on the rate of return of any particular investment and does not include costs incurred under a particular investment. It is also not intended to serve as financial advice or as a primary basis for your investment decisions. Systematic investing does not ensure a profit nor guarantee against loss. Investors should consider their financial ability to continue their purchases through periods of low price levels. Taxes are generally due upon withdrawal.
Susan not only ends up with more money than Larry, but she also contributed significantly less money than him. This is one of the potential benefits of starting early.
Pension and Social Security are not what they used to be
It’s never too late to start
You may even be able to take advantage of “catch-up” provisions to increase your contributions. A few years of investing could put you ahead of where you’d be if you’d done no investing at all.
Borrow money from yourself
Note: loans will reduce your account balance, may impact your withdrawal value and limit participation in future growth potential. Other restrictions may apply.
No expertise required
Saving made painless
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