A 401k plan can be a very valuable asset for your future. It allows you to save more without being taxed just yet. If you don’t know what a 401k is then you should read on so you can find out more.
Tax Deferred Retirement Fund
What is known as a 401k is officially termed as a tax deferred retirement plan. The fancy alpha numeric code comes from the law that authorized the creation of retirement plans like that. From the name, you could guess that the benefits of this type of retirement plan are in connection with the taxes that it is charged with. In a 401k plan the money that you contribute is not taxed right away. That means any portion of your income that you contribute to the plan will not get taxed just yet. When the time comes when you would be using the plan then that is when it would be charged with taxes, hence the term deferred. The existing tax rates would then be used at that time.
The money that is accumulated on the fund is then invested. Usually it is placed on the stock market. By investing it, your money can earn income, though you cannot use it just yet, you know that you would have something saved up for your retirement. Check out the Suncorp superannuation calculator for help planning for your future.
Is it Possible to Lose Your Entire 401k?
Some people are concerned with their 401k. They are worried that they might lose it in its entirety. It would be such a shame to lose a huge part of your savings, money that you have worked for, so quickly. The truth is that it is really possible for you to see your entire 401k vaporized.
Keep in mind that the money in your retirement plan is not just sitting in some vault where it is kept until you retire. That’s not how it works. The money is used for investments and the most common financial product where it is placed are stocks. Like other forms of investment, there is risk in the stock market. Some stocks are riskier than others but in the end, all stocks have the potential of going bust.
So if the money in your plan was invested in stocks that lost value, then you could really lose all of your money. That’s a highly unlikely scenario but it is possible and it can happen. What is likelier is that you can lose a good portion of your money when it is invested in shares that go down in value. You can lose a good portion of your retirement savings within a few minutes of trading.
The best way to prevent that from happening is to diversify your investments. This means that your portfolio should include both low risk stocks that can provide poor returns and those that can provide high returns but are high risk as well.
These are just some things that you ought to know when it comes to your 401k. It is your duty and responsibility to be aware.