Important things to know about 401(k) Plans

Mar 8, 2023Financial Literacy

When thinking about and planning for retirement, one type of savings plan you might hear a lot about is a 401(k) plan.  But what exactly is this plan and how does it work? 

401(k) plans are one of the most used types of retirement vehicles.  Essentially, this plan allows employees and their employer to contribute money towards the employee’s retirement savings.  The employee makes decisions regarding how to invest their money to best maximize earnings.

Using the free *Native American Financial Services Association (NAFSA) Financial Literacy Program, you can explore online playlists with many modules that relate to overall financial competency, whether this is understanding checking accounts or paying for college, our curated playlists will provide you with important information.

401(k) Plans:

There are many reasons to open a 401(k) plan, with the main one, and the impetus for many individuals, being when your employer offers a match.  This is when your employer will match either your full contribution or up to a certain percentage of your gross income.  If this is offered, it’s a great way to increase your retirement savings by taking advantage of this benefit.  

Also, when you deposit into an interest bearing 401(k) plan, you will earn a set percentage of your overall balance in interest each year, which over time, will compound interest.  Essentially, you’ll be earning money on earned money.  One important thing to remember and be aware of with any 401(k) account is when you become fully vested, which can vary, so be sure to look closely into this.  Another important thing to note about 401(k) plans is they can provide a tax benefit by lowering your annual taxable income. 

Our 401(k) Plans module, located in the Planning for Retirement playlist, also goes over the types of 401(k) plans, ideas on how to best determine the amount you should contribute, what happens when you withdraw funds from your account, and how your funds are invested.  

The NAFSA Financial Literacy Program provides a variety of modules and tools with easy-to-understand information to help people better comprehend their finances and make more informed decisions.

Explore the program today:

*The NAFSA Financial Literacy Program content contained on the NAFSA web page(s) referenced above, and on any subsequent pages created by our service providers/partners, provides general consumer information. It is not legal or tax advice or regulatory guidance. There may be other resources that also serve your needs and you are always encouraged to, and should, consult with your own professional advisors prior to making any financial decisions.

Pin It on Pinterest