Seven Reasons to Invest in a 401(k)

    The number one reason to invest in Boston College's 401(k) plan is the uncertain future of Social Security. Even if the program does survive and you do receive Social Security payments, the odds are that you will need some other form of income to supplement your social security. In fact, in 1998 the Social Security Administration estimated that Social Security will provide less than a quarter of what you'll need to pay for housing, food, and other living expenses--not to mention an occasional golf game. It's up to you to save and invest for your own future.

*Source: Social Security Administration, April 1998

Here are six more reasons:

  1. You can increase your take home pay
  2. $4.00 from Boston College for your $1.00 can help your investments grow rapidly
  3. Automatic payroll deduction makes it easy to save
  4. Professionals manage the funds in Boston College's 401(k) plan
  5. Most plans allow access to money in an emergency
  6. Your money can grow with you, job to job

You can increase your take home pay

Investing money through your 401(k) plan gives you the benefit of the "tax-deferred saving." This lets you increase your take home pay and decrease your current income tax bill. Remember though your pre-tax contribution are not tax-free, they're tax-deferred, which means that you don't pay income tax on this money until you withdraw it from the plan (which should be at retirement, when you may be in a lower tax bracket).

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$4.00 from Boston College for your $1.00 can help your investments grows rapidly

    The Boston College 401(k) program is unique in that for the first two percent that you invest in their 401(k) plan they will give you an astounding eight percent. Once you have been with the college for over nine years they will sweeten the deal and give you ten percent on your two percent. In more general terms this means that for every $1.00 you invest the college will put $4.00 in for you or in the case of being there for more than nine years $5.00. Obviously, it makes good sense to take advantage of this program by setting aside the maximum amount. Because this is such a high percent they put in, your savings can grow much faster than it you were at a company that simply matched or only put a fraction of what you contributed.

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Automatic payroll deduction makes it easy

    Saving is convenient with your 401(k) because the money comes right out of your pay before you get your paycheck. This automatic payroll deduction helps make saving your number one priority. You don't see the money so you are not tempted to spend it!

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Professionals manage the funds in Boston College's 401(k) plan

    The breakdown of the company's that manage the 29 funds in the 401(k) plan are Fidelity mutual funds (17), Scudder (6), PBHG (2), Janus (1), Templeton (1), PIMCO (1), and Founders (1). By investing in mutual funds, you place your money in the hands of a highly experienced teams of investment professionals. Each fund is managed by a "portfolio manager," and a global team of dedicated analysts that work behind the scenes to provide in-depth research and analysis on the companies and securities that make up the funds. They do the work, so you don't have to.

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Most plans allow access to money in an emergency

    The money you invest in your company's 401(k) plan is designed to help you when you need it most: at retirement. But for those unexpected circumstances that can arise, many plans allow employees to dip into their account balances before retirement. Generally, there are two ways to do this.

Loans: When you take a loan from your 401(k) account, you actually take money out of your account with a promise to repay it. You pay your account back the balance you borrowed, plus interest. If you pay back your loan on time, you won't be subject to withholding taxes or penalties, as you would if your withdraw from your account before retirement. For more information on loans, see our Loans area.

Withdrawals: Withdrawals are a different story. When you withdraw money from your 401(k) account, you can't put it back. Different plans may allow you to take withdrawals for different reasons. The most common withdrawal type is the "hardship withdrawal." According to IRS regulations, to qualify for this type of withdrawal, your "hardship" must represent an "immediate and heavy financial need" and there must not be "any other resources reasonably available to your to handle that financial need." The IRS recognized four reasons for a hardship:

    Some plans also allow hardship withdrawals for other reasons. Check with your benefits department. You will need to show your employer proof of how you intend to use the money, and proof that the amount your requested isn't more than enough to satisfy your need. Currently, when you take a hardship withdrawal, 20 percent of the amount you withdraw will be withheld to prepay your federal income tax (you may owe more or less than this amount when you file your tax return). Also, you may owe a 10 percent early withdrawal penalty if you are under age 59 1/2. Effective January 1, 1999, certain hardship withdrawals are not eligible for rollover. Therefore, 20 percent is no longer automatically withheld from your hardship amount. The withdrawal will, however, be subject to 10 percent mandatory withholding unless you elect out of withholding. You may still owe income taxes and a possible 10 percent early withdrawal penalty if you are under 59 1/2 when you file your annual income tax return.

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Your money can go with you, job to job

    One reason why plans like the 401(k) have become so popular is that they are portable: generally speaking, you can take them from job to job (with some exceptions). If you decide to change jobs you have three options for your money.

You could directly roll the old 401(k) account into your new employers' 401(k) plan and resume contributing to it.

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