How many of you, guys, have heard of Ramit Sethi before? I just recently saw his Netflix show; it was great. There’s some good things I liked about it, and there’s some things I maybe didn’t agree with as much, but I’ve noticed he’s kind of like the Dave Ramsey for millennials, isn’t he? Well, I wanna talk about a video here that I’m gonna share that he was talking about 401ks and what you should be doing with that. ‘Cause the question is, should you be loading up your 401ks and when should you and how much should you be putting in your 401ks? So I want to kind of hear what his advice is, see what is here, and maybe what I would add to it or agree with, but maybe something I might say would be completely different. So let’s just take a look here.

Watch the full video here –

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401k’s Are Just Tax Deferred!

401k’s are a popular way for individuals to save for retirement, but many people may not fully understand how they work. One common misconception is that 401k’s are a way to avoid paying taxes on retirement savings entirely. In reality, 401k’s are simply a tax-deferred investment vehicle.

When individuals contribute money to their 401k accounts, the contributions are made with pre-tax dollars. This means that the money is taken out of their paychecks before taxes are deducted, reducing their taxable income for the year. This can result in immediate tax savings, as less of their income is subject to taxation.

However, the tax benefits of a 401k are not permanent. While the money in the account grows tax-free over time, when individuals begin withdrawing funds in retirement, they will be taxed on the withdrawals as ordinary income. This means that the money they contributed, as well as any investment gains, will be subject to income tax at their marginal tax rate.

The key benefit of a 401k is the ability to postpone paying taxes on the contributions and investment gains until retirement, when individuals may be in a lower tax bracket. This can result in significant tax savings over time, as the money in the account has the opportunity to grow and compound without the drag of annual taxes.

In addition to the tax-deferred growth, many employers offer matching contributions to encourage employees to save for retirement. This means that for every dollar an employee contributes to their 401k, their employer may also contribute a certain percentage, up to a specified limit. This is essentially free money that can help individuals supercharge their retirement savings.

While 401k’s are a valuable tool for retirement savings, it’s important for individuals to understand that they are not a way to avoid paying taxes entirely. Rather, they provide a means to postpone taxes on retirement savings until a later date, when the hope is that individuals will be in a lower tax bracket.

As with any investment, it’s crucial to carefully consider the tax implications of a 401k and to take full advantage of employer matching contributions. By understanding how 401k’s work and the tax benefits they provide, individuals can make informed decisions about their retirement savings and work towards a secure financial future.