One of the most important aspects of overall financial planning is properly saving and preparing for retirement. While most people have decades to save and prepare, knowing how much will be needed and reaching that target will be quite difficult for most. Luckily, there are several retirement accounts that people can take advantage of that will help them reach their target balance. One of the most common accounts is a 401k, which are often sponsored by someone's employer. There are many benefits of investing in an employer sponsored 401k account.

The first advantage of investing in an employer sponsored 401k account is that a person could take advantage of a 401k match, which is given by an employer. Many employers that offer their employees access to a 401k account also provide them with an investment match, which encourages saving. The 401k match is normally equal to a percentage of an employee's salary. Normally, an employer will give the employee up to 3% of their salary as a direct contribution to their 401k account. While this may not seem like a lot of money, it is completely free to the employee and immediately improves their return.

The second advantage of an employer sponsored 401k account is that the employee has successful funds to choose from. The administrator of a company's 401k plan will choose various investment funds in which an employee can invest in. These funds are normally diversified funds, which have a wide range of risk and return results. Those that are young, and looking for a large return, will have various funds to choose from and those who need to be more conservative will also have several investment choice.

The third advantage of an employer sponsored 401k account is that the employee can save money tax free. A 401k account is funded through pre-tax earnings. Because of this, for a person in the 25% tax bracket, every $1 saved will only have a $0.75 reduction to their paycheck. While the investor will eventually have to pay taxes on their withdrawals, this will allow them to save more throughout their life. Furthermore, all of the positive investment returns and dividends received will not be taxed until the person withdrawals the money during their retirement.