At First State Bank, we have been a proud member of our community since 1899 and understand the importance of planning for the future. That's why we are committed to helping our customers understand the benefits of a 401(k) plan and how it works.
What is a 401(k) Plan?
A 401(k) plan is a type of employer-sponsored retirement savings plan. It allows employees to contribute a portion of their income to an individual account that is set aside for their retirement years. The money in these accounts grows tax-free and can be invested in a variety of stocks, bonds, and other investment options.
How Does a 401(k) Work?
Participants in a 401(k) plan can contribute a portion of their salary, pre-tax, into their account. The money is automatically deducted from each paycheck and invested in the plan. Most plans also offer employer matching contributions, which can significantly increase the balance of your account.
Investment options within a 401(k) plan typically include mutual funds, stocks, bonds, and other investment vehicles. You have the ability to choose how your money is invested and can change your investment options as your financial goals and needs change.
Advantages of a 401(k) Plan
401(k) plans offer a number of benefits for employees:
- Tax benefits: Contributions to a 401(k) are made pre-tax, which means you reduce your taxable income for the year. Additionally, your investment earnings grow tax-free until you withdraw the money in retirement.
- Employer contributions: Many employers offer matching contributions, which can significantly increase the balance of your account.
- Automatic savings: A 401(k) makes saving for retirement easy and automatic, as the money is deducted from each paycheck.
- Investment options: You have the ability to choose how your money is invested and can change your investment options as your financial goals and needs change.
Withdrawing from Your 401(k)
You can generally start withdrawing money from your 401(k) plan when you reach age 59 ½. However, if you withdraw the money before that age, you will typically be subject to a 10% early withdrawal penalty, as well as regular income taxes on the amount withdrawn.
Additionally, most 401(k) plans have a required minimum distribution (RMD) beginning at age 72. This means you are required to take a certain amount of money out of your account each year to help ensure that you don't outlive your savings.
Get Started with First State Bank
At First State Bank, we believe that everyone should have the opportunity to plan for their future and build a secure retirement. That's why we offer retirement plans to our customers. Click here to learn more about retirement plans that First State Bank has to offer.
If you are interested in learning more about 401(k) plans or retirement accounts and how they can benefit you, contact one of our knowledgeable banking experts today. We are here to help you plan for the future.