Can Your 401(K) Really Help You Afford Retirement?

One of the most frequent questions people nearing retirement ask their financial advisor is whether or not their 401(k) savings combined with other investments will be enough to help them enjoy a comfortable retirement.

According to a recent study conducted by RetireOne and Midland National Life Insurance Company, a whopping 82% of surveyed financial advisors reported their clients are fretting about outliving their retirement savings.

What Are 401(K) Plans?

A 401(k) is an employment-based retirement plan – you can’t open one unless your employer offers it. If they do, you can choose to contribute money to the plan (up to limits updated by the IRS annually).

Advantages of 401(K) Plans

Contributions made to a traditional 401(k) reduce your taxable income in the year you contribute, lowering your tax liability.

Drawbacks of 401(K) Plans

If you make an early withdrawal (before age 59.5), the IRS will assess a 10% penalty on top of any taxes you owe on the withdrawn amount

If you make enough that you can spare more for savings than IRAs allow, a 401(k) lets you set aside a lot more into a tax-advantaged account and defer taxes to a retirement that may see you in a lower tax bracket.

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