Did you know your 401k is like a magician’s hat?
Imagine you get called up on stage and the magician pulls out his 401k magician’s hat.
And he asks you to check the hat to make sure there’s no secret compartments. You inspect it and verify that the hat is completely empty.
The magician hands you a bunny and asks you to place it in the hat. You oblige.
Then he waves his magic wand over the hat, says an old school “Abracadabra” and asks you to retrieve the the bunny.
And to your and the crowd’s amazement, you pull out TWO bunnies!
The crowd goes wild and your 15 minutes of fame is up.
This is what happens when you contribute to your 40k.
If you put in $14,625 into the 401k magician’s hat, you’ll pull out $19,500.
It’s because 401k’s contributions are pre-tax. So if you’re in the 25% tax bracket, when you max out your 401k contribution of $19,500, it’s only “costs” you $14,625 of spending.
And that’s why even if your company doesn’t match, it’s still worthwhile to max out your 401k contributions every year.
ACTION ITEM: If you’re not a Financial Zen Member, check your most recent paystub to make sure you’re on track to max it out this year.
If not, then consider bumping up your 401k contribution rate for your remaining 3 paychecks.
(If you’re an FZ member, we’ll check this for you.)
And it won’t even cost you your 15 minutes of fame!
