what are the benefits of a 401k account?

Question

Basically, I'm putting in 5% of my paycheck because the company matches it. It's a lot of money that they're taking out every month, so I wanna know, what does it do for me?

Answer 1

Reasons why 401(k)s are a smart idea

There are many advantages to saving for retirement through your workplace retirement savings plan, including a potential match from your company, as well as professional management of your investments. The best reason to save in your plan is plain and simple: it's up to you to save and invest for your own future.

Here are seven more reasons:

1.) You can increase your take home pay, really
2.) A company match can help your investments grow
3.) Automatic payroll deduction makes it easy to save
4.) Most of your plan's investment choices are managed by professionals
5.) Most plans allow access to your contributions in an emergency
6.) Account services keep you informed
7.) Your money can go with you, job to job

Answer 2

In addition to what the other responders said (Free money, tax advantage, compound growth), there is a psychological advantage to having the money taken out before you get your paycheck. You don't "forget" to invest and you adjust your lifestyle to account for the lower amount of money you take home.

Answer 3

You save money, which is a good thing. You get free money, from your employer, which is a good thing. You get tax deferral on the savings and on the matching, which may be a good thing. You will have more money to retire on.

Over the years, you will see your savings grow by leaps and bounds. If you have anything to save after your contributions, consider starting a Roth IRA. You pay taxes on the money invested, but all of your earnings are tax free.