Have a 401(k)?
Reasons to stand by your plan
Employees' 401(k) retirement plans took a big hit during the recent financial crisis. It wasn't unusual for plan holders to see as much as a 40 percent decline in the value of their accounts. In response, some investors withdrew assets from their 401(k)s, vowing never to return, while others remained skeptical about making additional contributions.
No doubt, the image of the 401(k) was greatly tarnished by the Great Recession of 2008/2009. However, you should still view this plan as a viable means to save for your retirement. Here are a few reasons:
- Contributions are generally tax deductible. Some employers have implemented a Roth segment to their 401(k) plans. While the contributions are not tax deductible, qualified distributions, including earnings, will be income tax-free.
- Any contributions that your employer matches are, in essence, free money. And often, the greater the contribution, the greater the match.
- The earnings you make from your investment are tax-deferred.
- Funds withdrawn prior to the age of 59½ typically incur a 10 percent penalty tax, unless an exception applies.*
- Systematic investing is generally considered a better investment strategy than trying to time the market.
- If you had stayed with your plan you probably have more than recovered your losses.
Learn more about retirement planning with Prudential.
*A periodic investment plan does not assure a profit or protect against a loss in declining markets. "Publication 575: Pension and Annuity Income," Internal Revenue Service, 2007.