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Burr Capital Advisors
At Burr Capital Advisors, we specialize in financial planning for every stage of life. We approach financial planning from a foundation built on lasting relationships with our clients. It is important to us that our clients understand exactly what it means to take the next step towards their unique financial future, which is why we take pride in client education. We found that there is immense value in investing in our clients’ understanding of their portfolios. For 401(k) and investment planning in West Hartford, CT, look no farther than Burr Capital Advisors. Burr Capital has been voted the third best financial firm in West Hartford, with Whitney Burr voted as the Best Financial Advisor. We help you make informed financial decisions every step of the way, bringing you closer and closer to your version of financial freedom.
401(k) Retirement Plan
So, what exactly is a 401(k) retirement plan? A 401(k) retirement plan is a defined contribution retirement account that is usually employer-sponsored. A 401(k) retirement account allows employees to designate part of their income to save money for retirement in a tax-advantaged manner. The funds that are contributed to the 401(k) retirement plan account are invested in investment vehicles such as stocks, bonds, mutual funds, etc.
Can I retire just with a 401(k)? What does a 401(k) retirement look like? To answer these questions simply, it is likely that a 401(k) retirement plan is not enough on its own to ensure you have a comfortable retirement and a 401(k) retirement looks rather insufficient by itself. You want to utilize your available company-sponsored 401(k) retirement account if your employer offers one. However, it is not enough to retire in and of itself usually. While a 401(k) retirement plan has numerous benefits, it also has drawbacks and limitations. Due to Internal Revenue Service (IRS) contribution limits, inflation, taxes, and potential fees, a 401(k) retirement account is not sufficient enough to retire on by itself. However, a 401(k) is a viable component of a well-rounded and well-balanced retirement portfolio.
How Do 401(k) Plans Work?
How do 401(k) plans work? The most basic way to explain how a 401(k) plan works is to think about it as a savings account. Similar to a savings account, you put money into it to save for your retirement. However, money that you put into a 401(k) gets invested into different investment vehicles that you get to choose. You contribute pre-tax funds directly from your paycheck. That money then grows over time. Growth is based on investment earnings. When you retire, you can take out withdrawals or distributions to fund your retirement.
401(k) Planning Basics
A 401(k) retirement plan is tax-advantaged. Instead of keeping funds in a regular savings account, maximizing your contributions to your 401(k) retirement plan is wise. Everybody must pay income taxes because it is part of life. 401(k) plans, however, let you defer your income until retirement. Because contributions are made to 401(k) plans pre-tax deductions, you pay fewer taxes in that given year. Of course, you do have to pay taxes on this income in retirement. Sometimes this is beneficial, especially if you’ll be in a lower tax bracket in retirement.
Similar to a 401(k), a 403(b), and a 457(b) are other kinds of tax-advantaged retirement savings accounts with an investment component. Depending on what kind of employment field you are in, you will be eligible for one or more of these accounts. Non-profit companies, for example, offer 403(b) plans instead of 401(k) plans.
Many employers will match contributions made to a 401(k) retirement plan up to a specific dollar amount or percentage. If this is the case with your employer, choosing not to contribute to the allotted match contribution, you are choosing to throw away free money.
A 401(k) plan has some diverse investment options for the plan owner to choose from. You get to have the power to decide where you want to allocate investments when it comes to your retirement funds. Leaving your money in a traditional savings account gives the bank control over your money, and growth rates are slow and fixed.
When you choose which investment vehicles to utilize for your 401(k) retirement plan, it is essential to consider your appetite for risk. If you are closer to retirement, you might have a lower threshold for risk than someone just starting on their retirement savings journey.