You’ve probably heard the term 401k from your employer. But what exactly is a 401k? A 401k plan is an employer-sponsored profit-sharing plan named after section 401k of the US Internal Revenue Code. Employees can take cash payments in the form of a retirement plan if they so elect. The percentage taken out is your choice.
There is another cool fact about 401k plans – your employer can match your contributions. This is essentially free money, and it can enhance the growth of your retirement assets over time. According to the Bureau of Labor Statistics, the average 401k match nets out at 3.5%. Workers who are younger than 50 can contribute a maximum of $20,500 to a 401k for 2022. However, if you’re age 50 or older, you can contribute an extra $6,500 per year, bringing your total 401k contributions for 2022 to $27,000.
Learning about 401k plans and their benefits will help you better prepare for your retirement years. It’s never too early (or too late) to start thinking about retirement!