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What You Should Know About Your 401K and Taxes

What You Should Know About Your 401K and Taxes

By on Feb 2, 2016 in Tax Tips, Taxes | 0 comments

calculator-723925_640It is understood that not everybody has the talent to properly manage money in profitable way. That is why if one has the opportunity to take advantage of a 401K Retirement Savings Plan, by all means, do it! It’s the easiest way to save money while gaining interest and one doesn’t have to be an investment guru to make it happen either

What is a 401K

Most people may not even know what a 401K is and maybe even afraid to ask. The saying “there’s no such thing as a stupid question” applies here, especially when it comes to money! In fact, regarding money matters, the more questions asked, the better!

A 401K savings plan is a retirement plan that most companies offer to their employees. Through this plan, employees can take a certain percentage from their paycheck and invest it into an account. However much money the employee invests into the account, the employer will then match it up to a certain percent.


The 401K Plan can be said to be the easiest profitable savings plan. Yet, before everyone starts looking where to sign up, one must first find out if he or she is eligible

Typically, one must work for a company that actually offers the plan. Not every company will have this benefit, but if they do, there are usually certain stipulations for an employee to. One of those stipulations requires a person to work full-time. Others might be that an employee wouldn’t be able to qualify until he or she has worked a certain amount of days. It is most common for employees to complete a full 90-day period, however, it is recommended for one to inquire what these stipulations are with his or her employer

Matching Rate, How Much Can You Afford?

A big plus with the 401K Plan is that employers will match what one has contributed up to a certain percentage. This can be looked at as “free” money. So it stands to reason that the more money that one contributes to his or her 401K Plan, the more “free” money he or she will receive from his or her employer.

According to U.S. News & World Report Money, most employers match up to 50 cents for each dollar one invests into the plan, but this is just most! Approximately 23% of employers in the United States offer this same formula. Other employers have the liberty to select from over 200 different match formulas. At any rate, no matter the formula, if an employer is offering to add more money to an amount saved, it is highly recommended to take the offer!


If someone proposing to contribute more money to an existing savings account isn’t enough to convince one how profitable a 401K Plan is, perhaps considering the amount would be tax-free might help. In other words, whatever amount of money one decides to contribute to his or her 401K Plan will not be taxed until the day he or she chooses to withdrawal the funds.

There are other key factors that one must take into account if they choose to participate in a 401K Plan. To find out what they are, contact Success Tax Relief at 877-825-1179 or send us a question online today!






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