Your 401(k) is an extremely powerful tool, and knowing how to use it can dramatically increase the value of your investments in the long term. In fact, leveraging the tax advantages of a 401(k) could mean retiring years earlier - regardless of your age or income!
After all, retirement is not an age - it’s a number. Regardless of their age, anyone can retire when they have enough money invested. The golden 4% rule tells us that one must have 25x their annual expenses invested to retire safely.
There are many strategies you can use to get to this point. Still, one of my favorites is through maximizing your boring ol’ Traditional 401(k) contributions, investing them in low-cost index funds, and watching compound interest work its magic.
Why? Because Traditional 401(k)s allow you to defer taxes on your hard-earned money, meaning the money you would be giving to the IRS each paycheck will instead be invested and earn interest - putting the full value of each dollar you earned to work for you.
Believe it or not, this strategy can earn you extra hundreds of thousands of dollars over the course of your career. In addition, it can help you hit your retirement number years earlier than using a taxable brokerage account.
And don’t worry - this doesn’t mean simply kicking the tax can down the road! There are strategies to access your 401(k) investments at any age while also optimizing or legally avoiding taxes when you withdraw… but that’s a topic for another day.
*Content in this newsletter is intended for informational purposes only. It is not intended as legal, tax, investment, financial, or other advice.