Should You Invest in a 401(k)?

If you're looking to save for retirement, ask yourself these questions.

Medically reviewed in June 2021

Investing in a 401(k) can be a simple way to save for retirement—but these are company-sponsored plans: If your employer doesn’t offer one, you’re out of luck. Even if your company does, you’ll want to take a few things into consideration before opening a 401k account. Ask yourself these five questions:

  1. Does your employer match your contributions?
  2. Do you need an easy way to save, or you won’t save at all?
  3. Do you want to go craaa-zy with your contributions? The limits in 2016 for an IRA/Roth IRA are $5,500 per year if you’re under age 50; for a 401(k) it’s $18,000 for your personal contributions. These numbers do tend to go up year to year, so check with your plan or the IRS website to see current maximum contributions.
  4. Do you want to get the benefits of an employer match—and then roll over your balance into an IRA/Roth IRA when you leave the company? It’s all yours to move over without penalty. (Just a quick FYI: always choose a “direct rollover” so you avoid taxes. It basically means that you are transferring the money straight into the IRA of your choosing so you aren’t taking possession of the money. That way it doesn’t look like you are withdrawing early, which will mean the tax bill that goes along with doing that.)
  5. Is your emergency fund low? You can take out up to $50,000 (or 50 percent of your balance, whichever is less) if you need it for an emergency and have no penalty if you pay it back within five years. Try your hardest not to exercise this option (especially if you have a precarious work situation, because if you lose your job, you have to pay it back within 60 days or it will be considered a default and hurt your credit score). Just know that option is there if you absolutely have no other choice.

Learn more ways to manage your money.

Excerpted from: RICH BITCH, by Nicole Lapin. Copyright © 2015 Nicole Lapin. Rich Bitch is a trademark used under license from Nothing but Gold Productions. Inc. Published by Harlequin. Reprinted with permission.

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