If you’re like many working Americans, your 401(k) may be one of your largest financial assets. The combination of regular elective contributions and matching employer contributions can help a 401(k) balance accumulate quickly.
One of the most powerful features of a 401(k) is the fact that growth isn’t taxed as long as the funds stay in the account. That tax deferral can often help funds compound at a faster rate than they might in a taxable account. You pay taxes on your 401(k) funds when you take distributions, and if you take a withdrawal before age 59½, you could also face a 10 percent early withdrawal penalty.
One of the essential goals of any retirement strategy is to ensure your future financial stability when you’re no longer working. A key way to do this is to reduce your expenses in retirement as much as possible.
Taxes are one of the biggest expenses retirees often face. As a retiree, you’ll likely be required to pay taxes on Social Security, pension benefits, retirement account distributions and more. This significant tax bill often takes many people by surprise, and it can critically affect your retirement savings.