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What to Know Before Contributing to Your Job’s Retirement Plan

You can count yourself fortunate if your job offers a retirement plan. The details will vary, but these plans are designed to help you save for retirement. While you can chalk up your retirement plan as a win for your company, don’t trust them to manage all the details. You should understand your plan and be an active participant in your retirement planning.

Your Company’s Match

It is vital to know how much of your contributions your company will match. Employer matching is simply the amount of money that your employer will contribute based on your own contributions. Most employers offer partial matching. Often, businesses will contribute 50% of what you put in, up to 6% of your salary.

Knowing how much your company will match should inform your decision about how much to contribute yourself. In the above instance, the employee would be wise to contribute the full 6% of their salary so that they can get the entire 3% match from the company.

Restrictions on the Money

Some retirement plans come with restrictions. These could be limits on the amount of money that can be invested as well as rules about when the money can be withdrawn. Different types of plans will have different restrictions, so familiarize yourself with the inner workings of your specific type of plan.

One popular plan is the 401(k). This plan offers several perks, including employer matching and tax benefits. However, withdrawing 401(k) funds early carries stiff penalties under most circumstances.

The Type of Plan

Of course, the most fundamental thing to understand about your retirement plan is what type of plan it is. Knowing your plan type is the first step to learning about the restrictions and how you can play an active role in your retirement planning. The most common retirement plans are broken up into two groups: the 401(k) and the IRA. Within these two groups, there are more specialized plans with their own rules and regulations. The main differences between these plans are in the tax benefits they offer, the contribution limits, and the rules for withdrawing funds.

It is important for you to understand your job’s retirement plan. By knowing the ins and outs of your plan, you can be an active participant in your retirement savings. Know how much your company will match, understand your restrictions, and get familiar with your plan type.

Did you enjoy reading this article? Here’s more to read: How to Run an Online Business Effectively.

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