Many working people have a 401k plan. It’s actually the most common sort of retirement savings that employers offer. Surprisingly, most people who pay into a 401k don’t know much about where their money is going or what it can be used for. Broussard Poché, LLP wants to help clear up a few things about your 401k.
- You can take a loan. But this may not be your best option. Once you take the money out you have to pay it back, which can make your already small take-home pay even smaller. However, if you have no other source for cash and it’s an emergency, the money is there. If the need arises, check with your 401k plan administrator to start the loan process.
- You should contribute more. With automatic enrollment in most 401k plans, employees often stay at their original auto-enrolled rate which can be as low as 3.1%. However, most financial advisors recommend at least a 10% contribution. Some companies have started adding an auto-escalation, increasing the contribution rate a percent or two a year until workers reach 10 percent or more. You can pause your contributions. If you fall on hard times and need a bit more of your take-home pay, you can stop and then later restart your contributions.
- There’s another option, the Roth. Roth individual retirement accounts are an alternative to the 401k. A Roth will let you make after-tax contributions, and take a tax-free withdrawal at retirement. Roth 401ks give you the same benefits, but with a higher contribution allowance and no income limit.
Know your options, research your 401k and decide what’s best for you. You can and should reach out for financial help if you begin to feel lost. The experts at Broussard Poché, LLP can help guide you through the ins and out of your 401k plan.