10 Reasons to Contribute to Your 401(k)

Karen Roberts |

Top four Reasons

  • Its painless – Your employer automatically deducts the contributions from your pay check


  • Employer Matching – In many cases, your employer's 401k plan may offer a match, up to a certain percent on top of the contributions you make


  • Tax Breaks- Your contributions are tax-deductible, and your money grows tax deferred. You will NOT pay any taxes on this money until you start taking withdrawals 


  • Social Security – Collecting on your social security may not be enough and you will need to rely on other sources of income in retirement


more important reasons:

  • Interest compounding - This can be a difficult concept for new 401k savers to grasp, but it's what makes a 401k plan a powerful savings tool. Put simply, your earnings are plowed back in to the account, so you earn interest on your original principal plus interest. Over the short term, the gains can appear small. But over the long term, you can see exponential results


  • Dollar Cost Averaging – Investors use this strategy. Instead of looking (and waiting) for the bottom price at which to buy, you consistently use the same amount of money to buy securities over time. When prices are high you buy fewer shares, but when prices are low you buy more shares. This tends to lower the average cost of all your shares


  • Contribution Limits- You can contribute more to a 401k than to an IRA


  • Investment Options- Your money can be invested in various mutual funds


  • Emergency Access- Loans and hardship withdrawals may allow you to withdrawal the money in an emergency


  • You can move it- You can take your money when you change jobs and roll it over to an IRA