That is, for every dollar the employee puts in, the employer puts in another dollar. Owners don’t pay taxes on dollars they put in or the earnings from their investment portfolio until they start withdrawing funds.Īnother advantage of equal or greater importance for many 401(k) participants is that their employers match amounts they put into the funds. Contributions to 401(k) accounts are pre-tax. 401(k) ProsĪ 401(k) account’s major edge over an index fund is the tax advantage. Let’s take a closer look at the pros and cons of investing in a 401(k). This is free money that you wouldn’t have access to otherwise and can speed up your ability to invest for retirement. Investing in a 401(k) is often deemed to be a no-brainer if your company offers you the option, especially if they offer any kind of company match. Today, more money is invested in passive funds (including index funds) than actively managed funds. Added to other strengths of the approach, this has helped index funds outperform most actively managed funds over the long haul. This passive management style leads to less trading and lower costs. Index fund managers seek to match the performance of the overall market, or a list of specific securities, such as an index like the S&P 500, rather than trying to pick stocks that will outperform the market. The first publicly available index fund was launched in 1975. However, both contributions and earnings can generally be withdrawn tax-free after age 59.5. Early withdrawals of earnings may incur taxes and penalties. Roth 401(k)s have more flexibility than regular 401(k)s because contributions can be withdrawn at any time without penalty or additional taxes. Roth plans are funded with after-tax dollars. Employees who opt to participate in 401(k)s can have contributions automatically deducted from their paychecks, and these plans offer important tax and other benefits for retirement planning.ĭon’t confuse 401(k) plans with Roth 401(k) plans. Processing can take up to 16 weeks.A 1978 tax law change led to the creation of 401(k)s, and today they are the most popular employer-sponsored retirement account type. Three weeks after mailing in your return, you can use the "Where's My Amended Return?" page on the IRS website. Once you file an amended return, you can track its progress. This year, the IRS says you need to pay 80 percent of what you owe for the 2018 tax year to avoid a penalty. And it's important that your estimate be as accurate as possible, she adds. You'll need to estimate what you owe and send it into the IRS before your filing deadline. You can file an extension, but keep in mind that doesn't extend the time to pay, Kazenoff says. If you don't, you're going to owe interest on the outstanding balance. You should plan to pay the taxes on that unreported income before the April 15 due date. If you forgot to report income, such as that from a side hustle, Kazenoff says you'll likely need to file an amended return, and pay. Once you've followed those steps, here are a couple of other facts to keep in mind. "The more complicated the return is and the greater the dollars involved, having a tax professional who is well-versed in these areas is recommended," Kazenoff says. In that case, you may want to seek expert assistance. The situation can be different if you own a business, for example, and your issues pertain to more complex deductions or credits. If you're missing a document, again, the IRS can handle this and typically alerts you by mail. That's typically easy to resolve, Kazenoff says. For example, say you didn't include a 1099. She adds that if you prepared your taxes with TurboTax Live, you can connect with the TurboTax Live CPAs and enrolled agents year-round to get help amending your return.īut filing an amended return can also be done without help, especially if it's something fairly straightforward. If you used TurboTax to file your return, the software can also walk you through amending your tax return, Lisa Greene-Lewis, a TurboTax expert and CPA, tells CNBC Make It.
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