Q: What is a 401K Colusa?
A: A 401K Colusa is an agreement where the employer deducts a certain amount from every paycheck to go into a savings account. This savings account is specifically for retirement and treated as such.
The money is taken out pre-tax and you do not claim taxes on the money until after you have retired. At that time, the money then becomes income and that’s when you are taxed on the money. Because of this, you do not typically want to take money out of a 401K before you’ve retired.
Q: How has the economy changed 401Ks?
A: The economy has greatly changed 401Ks because if the market is down, you will lose money on the amount you’ve put into mutual funds. Because of this, many people feel it’s important to have a hefty liquid savings account in addition to the 401K. One thing to remember is you are never pulling out your 401K tomorrow. For most, you will not be tapping into that money for at least 10 years.
If you are very near retiring, you may do better to have money in a liquid savings account versus attempting to make money on the market. This highly depends on the amount of money you’re working with and advice for professionals in the financial market.
Q: Do I pay taxes on the money I’m contributing to my 401K?
A: No. The money is deducted from your paycheck. You are then taxed on the amount of money that’s leftover.
Q: Do employers match the money I contribute to my 401K?
A: Some employers do match the money put in a 401K, but that is becoming less and less common. When you are hired, you will go over these things with the HR department and they will tell you if they match or contribute some to employees’ 401Ks. Some do a half-match. For example, for every $1 you contribute, your company puts in .50.
Q: Should I contribute more if to a 401K if my employer matches?
A: You should always put into the 401K as much as you can, as early as you can. You may get used to living with less liquid cash, but for most this will benefit you greatly in the long run. You should max out the 401K if your employer matches your contributions because this essentially pans out to an extra salary each year.
