Several benefits await employees who choose to contribute to their employee sponsored 401(k) retirement plans.

401(k) Benefits
In addition to having retirement income, other benefits include:
1. Pay less taxes now (Pre-tax Contributions)
2. Tax-Deferred Earnings
3. Borrow from yourself and pay yourself back
4. First-time home buyers
5. Matching Employer contributions (free money)
6. 401(k) Rollover

Free Money
Let's start with the very best benefit of the 401(k). Many employers will contribute their money to your 401(k). This is free money. For instance, some employers may match the employee's contribution 100%.

Example
Suppose you gross $1000 per week and you elected to contribute 8% of your pay, which comes to $80. The employer will match that dollar for dollar up to 5%, which comes to $50 (5% of $1000= $50).

Now compound that over 20 years and it turns into a hefty benefit. Keep in mind every employer is different just as every plan is different. Check with your employer to see if they will match your contributions in any way.

It is worth mentioning that you will need to be vested in order to keep the employer-contributed portion of your 401(k).

Pretax Contributions
The amount of your salary you choose to put in your 401(k) is done so before any taxes are deducted. Therefore, you are immediately paying less tax to the government. Let's say your yearly gross salary is $40,000 and you contribute 10%, this lowers your taxable income to $36,000.

Tax-Deferred Investment Earnings
You do not pay tax on capital gains or dividends earned in your 401(k) until retirement or until you make a withdrawal. For instance, if your Index Fund in your 401(k) increased in value by $200, you would not have to pay tax on this amount until you utilize this money, ideally when you retire. At that time, it is taxed as ordinary income.

Borrow from Yourself
Some employer plans will allow you to borrow from your 401(k). Check with your employer for restrictions. You may be able to borrow up to 50% of the vested portion of your 401(k). You will be required to pay back the borrowed amount plus interest, both of which go right back into your account. Typically repayment involves automatic payroll deductions from your net pay.

Need Help Buying Your First Home?
There are certain circumstances and situations that permit early withdrawals from a 401(k) plan. One of them is for first time home buyers looking to purchase a primary residence.

This usually falls under the category of "hardship withdrawal". You may have to pay penalties and taxes, so be careful to weigh the pluses against the negatives. But if you need help with the down payment, just know that your 401(k) could come in handy.

401(k) Rollover
Another great benefit of the 401(k) is that you can take the vested portion with you to your next job, with only few exceptions.

You can do a direct rollover into your new employer sponsored 401(k); Roll it over into a traditional IRA; or withdraw all or part of your vested balance. If taking a withdrawal you can expect to pay a 10% penalty and taxes.

If you currently contribute to a 401(k) plan, be sure to check your plans rules and limitations by contacting the human resource department where you work. It is crucial to understand variations in 401(k) plans do exist.