“Hang in there, retirement is only 30 years away!” Workplace graffiti 401k is one of the most common words used when discussing retirement. But what do we really know about them? Most employers offer them to their employees as a means of providing a benefit to their employees. It is also a means of retirement for many workers.
Let’s lay out some stats for you so you get a framework of the influence a 401k has on our retirement.
Total value of assets held in a 401k $4.5 Trillion
Percentage of assets held in a 401k 18%
Total number of participants in a 401k 52,500,000
Percent of works that participate 81%
Average percent of salary contributed 6.8%
Percent of assets held in a mutual fund 64%
The average match of company contributions to 401k plans is 2.7%.
Let’s spend a little time to layout what a 401k is and how it works. Then we will spend some time comparing it to a Roth IRA.
What is a 401k?
“A 401(k) is a retirement savings plan sponsored by an employer. It lets workers save and invest a piece of their paycheck before taxes are taken out. Taxes aren’t paid until the money is withdrawn from the account.” Wall Street Journal
The 401k was established in 1978 and has grown to become the most popular type of employer-sponsored retirement plan out there.
First, it is not the name of your big sister’s friend. It is the newest IRA account out there.
It was announced in 2014 by President Obama in a State of the Union speech. It is designed to give people a chance to start saving for their future.
The myRA is a retirement plan created by the Department of the Treasury. It has no costs, fees, complicated investments or the risk of losing money.
Some of the facts about the myRA are that it is a no cost/fee retirement account that is opened through the Department of the Treasury. The monies are invested in government securities which have earned 2.94% over the last 10 year period. In August of 2016, it will earn 1.50%.
It has the same requirements as a Roth IRA. You can contribute up to $5000 a year and if you are over 50 up to $6500. It is after tax money so there will be no deductions come tax time. The contributions are not tax-deductible and will not be taxed upon withdrawal, just like a Roth IRA.
With the myRA, you can set up automatic contributions in which you can invest as little as $5 a paycheck. This gives you the flexibility to set aside an am0unt that will work with your budget.
You can also make one-time contribution lump sum like a tax return or form a savings account. Also, you can have regular contributions from your payroll via direct deposit or you can do a combination of the two.