401k and similar employer provided retirement investment plans can be a great asset for those that want to put some money away for their future.

Benefits of contributing to retirement funds

1. Free money: If your employer matches any portion of your contribution then not electing to go with a 401k or similar plan is just throwing money away. At a minimum it’s best to contribute the maximum that your employer will match. For example your employer may match 50 cents to every dollar that you contribute to the plan up to 6% of your salary. This means that if your paycheck is 1000 and you contributed 6% of your salary to 401k then the amount deducted from each paycheck would be $60. Since this is a tax deferred investment it really won’t hurt much. Now add in $30 (free money!) for the 50% employer matching and that is $90 per paycheck.
2. Take advantage of compounding interest: This This reoccurring investment along with the power of compounding interest will really add up over time. The earlier you can start a 401k plan the better since there will be more time to compound interest.
3. Tax Deferred Investment: The money elected to go into this type of retirement account does not get taxed by the government at the time of deposit. You will end up paying taxes on this money however it will be when you are retired and potentially in a lower income bracket.

401k investments not guaranteed and can lose value. The best way to keep this investment as safe as possible is to diversify risk by diversifying your investment portfolio. Some investment retirement plans allow a wide variety of choices while others offer very few. Spreading out the investment through different types of funds will help to absorb the effects of constantly fluctuating market. This is also called changing the asset mix. Right now I own about 6 or so different types of funds but I only contribute to two or three of them at a time since I change them around a few times a year. This is not a suggestion, just an example of how I have spread out my 401k investments.

Many people that can afford it will simply max out this pre tax investment (around $16k per year currently.)

Investment Education