Financial Wellness 101: Your 401(k) Plan

What is a 401(k)?

We’re sure you already know what a 401(k) is, but just for good measure, we’ll sum it up:

A 401(k) plan is an employer-sponsored program designed to enable employees to save for retirement.  Funds you contribute to the plan reduce your total taxable income (similar to the way your healthcare plan deductions reduce your gross income).  Your contributions to the plan can be automatically deducted from payroll on a regular basis or a few times a year, to give you the flexibility to grow your savings on a schedule that works for you.

The best part of 401(k) plans is that they are governed by the Tax Code and regulations that aim to help you keep the funds untouched until you’re ready for retirement. This way, over time, the balances in your 401(k) will be impacted by the overall contributions you make, as well as contributions made by your employer (in case of matching contributions) and investment performance of the funds.

Why is it so important to maintain a healthy 401(k) plan?

With regular contributions to a 401(k) plan, you can consistently and responsibly save for retirement, while still having enough take-home pay each pay period to cover your day-to-day expenses. Unlike other savings accounts that can be for a specific purpose or term, 401(k) plans are specially designed to help you create and build your retirement income. Without one, you may be at risk of not having enough income when you are no longer part of the workforce.

I’ve heard about 401(k) loans – are these a good option?

When financial hardships arise, 401(k) plans may seem like an attractive place to turn to plug the gap. However, the truth of the matter is, taking any amount out of retirement funds could mean a significant adverse effect to your investment’s growth potential, costing you dearly in the long run. It will take you years to repay even just a few thousand dollars, especially if, like most Americans, you’re not contributing the maximum amount into your 401(k).

The good news is that you may already have access to an affordable alternative at your fingertips! Kashable is an employee benefit that offers reliable, affordable credit when hardships strike, giving you the chance to handle financial burdens without a knock-on effect to your retirement plan.

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