Celebrations are meant to commemorate something special—a birthday, an anniversary, or a new job. While it might not seem that exciting, I want to open your eyes to the fact that if you have a 401(k), that’s also something worth celebrating. In fact, having a 401(k) in your benefits package is a big deal. Roughly half of Americans don’t have access to a work-based retirement account.1
National 401(k) Day falls on the Friday after Labor Day, making it September 11 this year. Here are three reasons why I hope you choose to celebrate 401(k) Day:
One day, your 401(k) will become your paycheck
Think of your 401(k) as a big bucket where you set aside money for your future. Every time you get a paycheck, you contribute a percentage or a dollar amount to your 401(k). Your 401(k) is not a vacuum sucking your money out of your pocket. It’s an incredible investment vehicle that provides a space for compound growth to work its magic.
But if you don’t put anything aside now, you won’t be packing your bags later to take a dream vacation, or visit the grandkids. You’ll be packing your lunch for yet another day at the office! Every time you contribute to your 401(k), think of it as another paycheck for your future self.
Your 401(k) gives you control of your financial future
People are more aware than ever about money these days. With the shutdown from the pandemic and the stock market taking us on a roller coaster ride, there’s a sense of uncertainty in the air. Everyone is on pins and needles, hoping for handouts from the government.
It’s time we learn the importance of saving and investing by ourselves, for ourselves. Uncle Sam, Social Security, or the next stimulus package won’t save the day. Your financial future is in your hands, and your 401(k) is a convenient way to make progress for yourself and your family.
Put more money in your pocket with 401(k) tax breaks
401(k)s give you great tax advantages, but they vary depending on which type of account you have:
- The traditional 401(k) is funded with pretax money, meaning your money goes into your account before it gets hit with federal and state income taxes. This lowers your taxable income for the year. However, you’ll pay income taxes on that money in retirement.
- The Roth 401(k) allows you to invest after-tax dollars, which doesn’t give you a tax break immediately. However, you get to enjoy tax-free perks during retirement. When you start withdrawing money penalty-free at age 59 1/2, you get to keep every single penny of the money you’ve put into that account.
If your company offers a Roth 401(k) option, take it. It will help you put away more now, and enjoy major tax-free advantages during retirement.
My hope for you is that you come up with a plan for your future, stay focused, and give yourself a reason to celebrate down the road. I don’t know about you, but I’m grateful to live in a country that offers so much opportunity to build wealth and chase down our dreams. Don’t make excuses—make progress!