For many U.S Clients, 401(K) plans are a crucial part of their retirement provision and are often forgotten about when moving from one employer to another.
For the majority of people with these types of plans it makes complete sense to consolidate their schemes and have them actively managed by a Qualified Adviser such as myself.
Traditional 401(K) Plans
These are the most common form of retirement plan, employee contributions are deducted from gross income, meaning the money comes from the employee’s payroll before income taxes have been deducted. As a result, the employee’s taxable income is reduced by the total amount of contributions for the year and can be reported as a tax deduction for that tax year. No taxes are due on the money contributed or the earnings until the employee withdraws the money, usually in retirement.
Roth 401(K) Plans
With a Roth 401(K), contributions are deducted from the employee’s after-tax income, meaning contributions come from the employee’s pay after income taxes have been deducted. As a result, there is no tax deduction in the year of the contribution. When the money is withdrawn during retirement, no additional taxes are due on the employee’s contribution or the investment earnings.
What Is the Main Benefit of a 401(K)?
A 401(K) plan lets you reduce your tax burden while saving for retirement. Not only are the gains tax-free, but it’s also hassle-free since contributions are automatically subtracted from your paycheck. In addition, many employers will match part of their employee’s 401(K) contributions, effectively giving them a free boost to their retirement savings.
How to Consolidate my 401(K)s?
Consolidating your 401(K) Plans is simple to do and is stress-free, please get in touch if you would like assistance in arranging this. Normal consolidation takes approximately 2-6 weeks to arrange and our team will be able to guide you through every step of the journey and manage your consolidated 401(K) going forward.
