401ks: A Cigar Lover’s Guide

As we continue to move through Cigar World's Finance Month we'd be remiss to not mention National 401k Day! As you may have noticed, cigars aren’t free. And if you love cigars as much as we do, it makes sense to make smart financial choices to ensure you’ll always have spare cash to pick up your favorite smokes. To that end, we’re going to focus on some finance 101 topics this month that all cigar lovers should understand. So let’s kick things off with an overview of 401ks –– or, as we like to think of them –– cigar retirement accounts. 

What is a 401k?

Simply put, a 401k is a retirement investment account. What makes it different from an IRA (Individual Retirement Arrangement AKA Individual Retirement Account) is that a 401k is employment-based. Here’s how it works: once you sign up for a 401k from your employer, a predetermined amount of money is redirected each month from your paycheck into your 401k account. 

Simple enough so far, but it gets better from here. 

That’s because many employers will match your 401k contributions to a degree. Some may even offer to fully match contributions dollar for dollar up to a certain percentage –– probably under 6%. 

But that’s not all! 

Money in a 401k doesn’t just sit there. Rather, your employer will set up a plan to invest that money in stocks and bonds. While you aren’t going to get rich quickly with one of the conservative investment plans, your money will likely grow over time this way. One last thing: money held in 401ks is somewhat tax-exempt. Depending on how you set up your 401k, you can earn a tax break when you contribute to your 401k or when you withdraw from it upon retirement. 

401k Best Practices 

One of the best things about a 401k is that it doesn’t really require much management. You don’t need to sweat everyday fluctuations in the stock market or stress about the best way to invest the extra money you save every month. Instead, once you sign up for a 401k, most of your hard work is done! Still, there are a few things you should keep in mind:

• Not every employer offers a 401k plan, and not every 401k plan is the same. Consider this the next time you apply for a new job.
• Take full advantage of a 401k offer. By choosing to forego a 401k offer from your employer, you could end up leaving a lot of free savings on the table. Note also that annual caps on how much you can invest in a 401k are higher for individuals over 50. As retirement approaches, it may be beneficial to invest more. 
• Don’t forget about your 401k when you leave jobs! Since 401ks are tied to employment, have a plan to either withdraw, transfer, or continue to manage your 401k savings when you move on from your current employer. 
• Keep saving. Just because you have a 401k doesn’t mean you should abandon your regular budget/investment plans. It’s always a good idea to have a rainy-day fund fully stocked just in case of an emergency. 

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*Not financial advice. For informational purposes only.