Contribute to your 401K
Planning for retirement is one of the most important financial decisions you can make. There will always be debates over which investments are better and how you should save your money, but one fact will always be agreed on and that is to start planning and saving early. There is nothing better than having time and compounding interest on your side.
Â Many times people ask if it is better to contribute to your employee sponsored 401K program or contribute to a Roth IRA. The simple answer to this question is if your employee sponsored 401K program offers any type of match benefit then you should take advantage of this free interest. However I would suggest only contributing the maximum amount that they match.
For example, with my current employer plan they will match 25% of every dollar I invest up to a maximum of 10%. Let’s assume that I make $800 per week before taxes. I contribute 10% of my earnings to the company 401K which is about $80 per week. In turn my employer will contribute an additional $20 to the account for a total of $100 per week. This money is invested pre-tax so you will have to pay income taxes on the money when you pull it out after retirement.
There isn’t anywhere else in the market I could invest my money and get a guaranteed 25% return on investment. It would be stupid for me to invest this money elsewhere. After the amount the company will match is somewhat debatable as how you should invest but many suggest a Roth IRA. A Roth IRA is a type of investment that you contribute to after taxes have already been paid on that income. When you reach the proper age of retirement you can withdraw the money from the account without paying any taxes on the income. Hopefully when you retire your tax bracket will be higher than when you first started working the money you will save in taxes will also be an added benefit. Another important factor to keep in mind is that more than likely taxes will be higher in the future than current. Again the Roth IRA would be a great investment.
The debate may always be around about where your money should be invested and which investments bring the best return rate, but one fact remains if your employer offers any type of match you should take advantage of it.