Don’t want to contribute to your Guideline 401(k)? You’re free to opt out – but before you do, please let us highlight a few often-overlooked advantages of saving with Guideline 401(k):
Think you can’t afford to contribute to your 401(k)?
Guideline lets you contribute less than 1% of your wages if you so desire, and we bet you won’t even miss that 1%. Thanks to the powers of compound interest, contributing even a little amount will go a long way.
Already saving for retirement through another non-401(k) account?
A 401(k) plan beats most traditional investment or banking accounts for several important reasons:
- Pre-tax contributions: With normal savings or investment accounts, you pay taxes on the money you’re saving – and you’ll pay taxes on the earnings of the money you’re saving.
In contrast, your 401(k) contributions are taken from your paycheck before taxes, and any earnings will grow tax-deferred.
- Tax-deferred growth: With other investment accounts, you must pay taxes on any capital gains you earn for that year. With a 401(k), you won’t have to pay taxes on those gains until you receive distributions during retirement.
- Immediate tax savings: 401(k) contributions can reduce your taxable income, lowering the amount of income taxes you pay in the year you contribute to the plan.
Very few other types of accounts can offer this tax advantage.
- Low expense ratios: According to Morningstar, the average investor in open-end mutual funds paid 0.71% in expenses in 2013.
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Compare this to Guideline’s average expense ratio of 0.07% – one tenth of the average! Since our expenses are substantially lower than any other investment account, more of your hard-earned money stays put in your account to grow.
- Bankruptcy & Creditor Protection: Your 401(k) account assets are protected in the event of bankruptcy or judgment creditors.
Traditional savings or investment accounts don’t offer this security.
- Higher Tax-Advantaged Contribution Limit: If you’re contributing to an IRA, a 401(k) will allow you to save significantly more – up to $19,500 in 2020.
Traditional IRAs, on the other hand, only permit up to $6,500 per year (the limit is slightly higher for both cases if you’re over 50 years old).
- Employer Contributions: A benefit unique to a 401(k) is the ability for employers to offer a matching and profit sharing contributions directly to your account, which won't be taxed until you take a distribution.
If your employer offers matching, take advantage of the opportunity to save even more for a happy retirement!