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Wednesday, December 16, 2020

401(k)

This is the retirement account everyone is familiar with.  401(k) accounts are available through your employer.  Contributions come out of your paycheck before taxes are withheld, which allows for greater contributions.  Growth within the account is also tax-free.  However, you must pay personal income tax on money that you withdraw.

Contribution Limits

You are allowed to contribute a maximum of $19,500 per year.  Employers are allowed to contribute up to $57,000 per year on your behalf -- so any "match" your company provides as a perk goes in a separate bucket and does not count against the limit that you yourself can contribute.

Matching

Many employers offer a match on your contributions.  The amount and limit of the match is decided by your employer.  As a common example, a company might match 50% of your contributions, up to a maximum of 6% of your salary.  Thus, if your salary is $100,000 annually, then the first $6,000 that you contribute will be matched with up to $3,000 by your employer.  You would still be allowed to contribute more (up to the personal contribution limit), but your employer would not match those additional contributions.

BEWARE:  Some employers