401(k) Accounts & Retirement Planning

They say that experience is the best teacher, but unfortunately it is something that you often get just after you need it. It is true that we learn from our mistakes, and in many cases these errors are blessings in disguise because the lessons that you do in fact learn serve you in good stead throughout the rest of your life.

However, there are some mistakes that you make that you can never fully recover from, and this is why it is so important to take retirement planning seriously. If you suddenly recognize that you are 60 years old and you have never saved a dime for your retirement, you may find that you will in fact never be able to retire.

Unless you are unusually wealthy, to be able to pay your way for two decades or more after you stop working you have to plan carefully in advance. For most people the planning starts by participating in a 401(k) plan on the job. A 401(k) is a savings account that you contribute into on a pre-tax basis. As the account builds in value the interest that accrues is not taxed. Plus, your taxable income is reduced by the amount of the contributions that you make into the account. So if you made $50,000 in a given year and contributed $4000 into your 401(k) your taxable income would be $46,000.

You can begin to take distributions from the account when you reach 59 1/2 years of age, and this influx of income is taxable. However, if you were to open a Roth 401(k) rather than a traditional one the contributions into the account are made after taxes, but future withdrawals from the account are not subject to income tax.

Considering the fact that Social Security alone is not going to be enough to provide you with a comfortable retirement unless you are prepared to live an extraordinarily spartan existence, it is important to save for retirement. A 401(k) is a good option, especially if your employer matches contributions that you make into the account.

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Anthony Moccia

Anthony Moccia is an attorney and partner at The Law Offices of Kobrick & Moccia.His practice focuses on estate planning and elder law.He is a member of the New York State and Nassau County Bar Associations.He frequently presents free seminars on wills & living trusts to area residents and his seminars are said to be “informative, entertaining & easy to understand.”

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