If you have a 401(k) at work, participate in it to the limit

The Ticker

October 01, 1997|By Julius Westheimer

As the fourth quarter begins, where should you invest your money? It's a no-brainer, really. Your best bet -- even if means tightening your belt some -- is to maximize contributions to a 401 (k) plan where you work.

A recent survey revealed shocking results: 40 percent of eligible PTC working men and women do not have a 401(k).

Who can have such a plan? What are its benefits?

Employees who are 21 with over one year of service are eligible. Once your plan is established, you may defer up to 15 percent of your compensation to a maximum of $9,500.

"Joining a plan is one of the smartest things you'll ever do," Lynn Brenner wrote in "Building Your Nest Egg With Your 401(k)." "Take this gift from Uncle Sam. There's no simpler, faster way to save a lot of money for retirement -- and you will need more money than you think to retire comfortably."

Some 401(k) benefits:

Money you put in is free of federal and state income taxes. The government is sharing part of the cost of saving for your retirement.

Assets in your plan grow free of income and capital gains taxes, one of the plan's most valuable features.

You receive favorable tax treatment when you get your money at retirement. You may transfer assets to a self-directed IRA to preserve tax-free compounding.

You may have access to your money before retirement. See your benefits department for borrowing details.

Here's an example of tax-deferred 401(k) savings versus a taxable account:

A taxable non-401(k) savings account for people in a 15 percent tax bracket, saving $100 a month at 8 percent for a 20-year period, returns $43,444. But that figure shoots up to $59,295 in a 401(k). In the 28 percent bracket, $32,492 taxable income grows to $59,295 tax-deferred.

Dollar-cost averaging in a 401(k) protects you against the risk that you won't be invested when it goes up.

Pub Date: 10/01/97

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