Is a 401(k) Worth It?

Wealthtender

Is a 401(k) plan worth it? This is a question on the minds of many people trying to decide if this retirement account offered through their employer is better than other savings options like an Individual Retirement Account (IRA). But it can get complicated, so I figured we’d benefit from a deeper dive to determine if a 401(k) plan is worth it with financial professionals’ invited to share their perspectives. So, I asked. Their answers are included in this article.

What Are 401(k) Plans and What Are 403(b) Plans?

According to the IRS, “A 401(k) is a feature of a qualified profit-sharing plan that allows employees to contribute a portion of their wages to individual accounts. Elective salary deferrals are excluded from the employee’s taxable income (except for designated Roth deferrals). Employers can contribute to employees’ accounts. Distributions, including earnings, are includible in taxable income at retirement (except for qualified distributions of designated Roth accounts).”

How Many Americans Participate in 401(k) Plans and How Much Is Their Total Balance?

Based on data from the Bureau of Labor Statistics (BLS), 51 percent of workers participate in 401(k) plans, and an estimate from the Pew Research Center says there are about 157 million workers in the US; we can estimate that over 80 million Americans are 401(k) participants.

The Advantages of 401(k) Plans

– Tax benefit – No income test for tax benefits – Employer matching – High(er) contribution limits – Automatic savings

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