Expert Debt Management
Expert Debt Management
Understanding 401(k) Plans

      Your employer may offer you a 401(k) plan and you may not take advantage of it because you don't know what it is or how it benefits you.  You should understand exactly how a 401(k) plans work and why you should start contributing to one.  These are great savings accounts that allow for consumers to lower their taxable income and begin saving money without making deposits.  Since the late 1970's the government has been encouraging people to take part in their employer's 401(k) programs, with the first true programs being offered in 1982.  Basically the accounts are contributed to by the employer as well as the employee and it earns interest accordingly, with most people using this type of account for their retirement savings.

     There are some unique benefits to choosing to utilize 401(k) plans.  To make the most of it, you should learn a little bit more about what makes these accounts different than some of the other savings options that are out there today.  The first thing that you should know is that the IRS limits annual contributions to your 401(k) to $11,000 a year, that being said, this is a substantial amount of money to put into a retirement fund each year.
    These plans are really nice because the money is taken out before taxes.  What this means is that you never even "see" the money being taken so you don't feel like you have a part of your paycheck taken from you, while you actually have had it taken out and put into the account!  These plans are also nice because many employers will match the amount that the employee puts into the account, so you can build your 401(k) faster than you would have ever imagined.
    Many people don't see the beauty of saving in a 401(k), but if you started saving when you were 25 you could have more than one million dollars saved by the time you retire.  If you decide to withdrawal the funds before you are 59 than you will have to pay a fee to the IRS of 10% of the amount that you are withdrawing from the account.  This may seem like a negative aspect of the account, but it will actually keep you from spending the money.

But how does this all work?
Fact: Your creditors end up subsidizing all or a large part of most debt consolidation services. What you ask? Well before you say this sounds too good to be true, keep in mind that your creditors are not lowering your interest rate and making it easier for you to make smaller payments out of the goodness of their hearts. They realize if they don't help you out a little you may file bankruptcy and they will never recieve a penny of what you owe them!

Disclaimer: This site is not , nor should it be taken to be, legal, financial or other professional advice. It merely provides a generalized guidance and generalized information only. Consult a financial advisor or an attorney to discuss any legal or financial issues involved with credit and debt decisions.
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