Kevin Connolly is founder and Chief Executive Officer of Buffalo First Wealth Management, LLC and Chief Executive Officer of Buffalo First Advisory Group, LLC. Kevin knows what he’s talking about in the world of finance, so follow his ten reasons to have a 401(k) and you might end up being a millionaire.
- It’s painless. Your employer contributes automatically from your paycheck to the 401(k) set up by the company itself.
- Many companies match. Often, companies will match what you put into your 401(k) at a rate of 3 to 5 percent—it’s basically free money.
- Tax break. Money put into a 401(k) is tax-deferred and it reduces your income. Example: If you make $40,000 and you contribute $10,000, you’re only taxed on the $30,000, and when the $10,000 is in the 401(k) plan, it is not taxable.
- Compounding effect. You have investments within a 401(k) plan, and as more time goes by, you will make money off the money invested. Meaning…more money.
- Dollar cost averaging. As you put money into your 401(k) on a weekly or monthly basis, you are purchasing investments over a period of time rather than in a lump sum. This gives you the advantage of getting into a lower-priced investment.
- Can contribute more than an IRA. While it has its purpose, you can’t contribute as much to an IRA as your 401(k). While the 401(k) has a contribution limit of $19,500 per year, the IRA has a contribution limit of $6,000 per year. For people aged 50 and over, the 401(k)contribution limit is $26,000 per year, whereas the IRA contribution limit is $7000
- Many 401(k) plans have mutual funds or ETFs. These different types of investments will make you more money, and many companies have one or both of them.
- Can take out a loan if you need to. Although this is not necessarily recommended, sometimes companies will allow you to take out a loan from your 401(k) plan. The main downside to this is that to pay back the loan, you will be using money that is taxed, so you’re essentially paying double the taxes.
- Right to roll the plan over. If you were to decide to switch companies, you have the right to transfer your 401(k) along with you.
- Social Security may be gone. While Social Security is a thing now, it will not allow you to retire early in the future. There is a strong possibility that the system will not survive long enough to be reliable, unlike a 401(k).
Kevin Connolly is founder, CEO, and Managing Partner of Buffalo First Wealth Management, LLC and CEO of Buffalo First Advisory Group, LLC. Connolly obtained his MBA with a concentration in Strategic Management from Medaille College and his BS in Business Management from Niagara University. Read more…