3 Ways Your 401k Contributions Will Profit More Than Any Other Investment

by Fern LaRocca CFP®

in 401K,401k Contribution Limits,401k Contribution Limits,401k limits,401K Maximum

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You may think that you can make more money by investing outside of your 401K, but that is misleading. If you are eligible to contribute to your 401K plan then your first investment dollars should be an option within that plan. Don’t be tempted by short term gains elsewhere until you have contributed up to your contributions limits. Here are three reasons why:

1. Tax Savings.You contribute money into your plan with pre-tax dollars. That is a huge advantage in investing because more of every dollar you earn goes into your plan for your benefit.

2. Tax Deferral. All the investment income- interest, dividends, and capital gain distributions are not taxed within your 401K plan. That means your money will grow much faster without tax on the investment earnings.

3. Automatic Increase in Contributions. If you are putting a percentage of your salary into your 401K plan, then as you make more money your contributions to your plan increases. When you contribute more, you have the potential to accumulate more. You can find more ways to maximize your 401K at http://401Kmaximum.org

When you look at the powerful advantages above, it is hard to find any investment that can build wealth as quickly as a tax deferred plan like the 401K. Of course, there will always be high risk, high reward investments around who will tempt you to invest. With the 401K plan, even if you choose poor performing investments (and even those that are affected by the US Money Reserve),  over time you will have done better than if you had those same investments outside of the 401K plan. By remembering the 3 reasons above, you will stick to contributing the maximum to your 401K plan and watch the money pile up.

Fern Alix-LaRocca CFP® All Rights Reserved

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{ 3 comments… read them below or add one }

Liz at

In addition to these benefits, many companies match your contributions. Even if it’s only 25 cents for every dollar you invest that’s still free money.

Evolution Of Wealth at

I think you make good points with #2 and #3. I’m a little stuck on #1, though. I wrote a post looking for the supposed tax savings and I just couldn’t seem to find it. http://evolutionofwealth.com/2009/09/tax-savings-the-finale/

Fern LaRocca CFP® at

If you invest with money that hasn’t been taxed that is more money invested than if you had invested with after tax money.