Living a peaceful retirement is everything someone dedicated to work can dream of! Be it here in Brazil, with public and private pensions, or in the United States, with 401k pensions. In any part of the world, people think more and more about this period of life.
In this article we are going to talk about the 401k pension plan and what is the difference between the plans offered in Brazil.
What is the 401k pension?
First, we need to understand that the 401k is a corporate pension. That is, it is offered to employees of a particular company.
The logic is the same as the corporate private pension plan offered in Brazil, since the investor contributes with a value during the time he is working in the company.
The maximum amount that each employee can contribute is updated annually. To give you an idea, in 2020, the maximum contribution was $19,500.
Let us next know the details of the 401k pension.
Understand how the 401k pension works
Reinforcing: the 401k pension is a retirement plan and it allows employees of a company to use part of their salary to make a long-term investment.
Employees can invest up to 15% of their salary in monthly deposits. But, remember that there is a maximum value? Yes, we have already seen that a contribution ceiling is announced annually.
What makes the plan advantageous is taxation , as the value of a 401k pension can only be taxed after the cash is redeemed.
In addition, companies that contract the plan for their employees can also contribute with part of the amount invested. But, as in Brazil, this is not mandatory. Generally, employers use match as a way to encourage the team.
By the way, match is the word used to indicate that, like the employee, the company also contributes monthly to private pension.
Benefits of investing in 401k
You may be wondering, is it really worth investing in a 401k pension plan? Isn’t it better to just stick with social security ?
In fact, one is complementary to the other. In the United States, there is also what in Brazil we popularly call INSS retirement. In American lands there is Social Security and it is mandatory to contribute.
The minimum age between them is also different. To start receiving Social Security retirement, the investor must be at least 62 years old, while for the private pension 401k the minimum age is 59.5 years old.
But let’s get to more 401k retirement benefits!
As we said, private pension complements social security, so this extra income brings more comfort and financial stability.
Even if the amount contributed is small, because of compound interest, the money yields exponentially. That’s why this modality is good for the long term.
Those who have difficulty raising money need not worry, as the contribution is deducted from the payroll every month and the investor sends the money.
These are just a few benefits, remembering that, as we’ve seen, contributions and investment income will only be taxed when you withdraw the money.
And companies, what do they gain by offering a 401k?
You may have already noticed that companies try to offer the best benefits to attract talent. So, private pension is one of the ways to bring in and keep more qualified professionals.
In addition, company contributions (match) are tax-deductible.
And in Brazil, do we have a private pension similar to the 401k?
Despite the differences between Brazilian and American pension plans, they are actually similar.
The Brazilian corporate private pension follows similar rules, such as the match, for example. Do you remember that up there it was said that the company can contribute along with the employee? So this can be offered by employers here as well.
In both, the longer the money is invested in the pension fund, the greater the chance of having good returns. And in case you leave the company, you decide how you will proceed. Some options are: withdraw the value or transfer the plan to a new employer, for example.
Although it is possible to redeem the money , this option is generally less advantageous because of the fees.
Now a difference between the 401k and Brazilian private pension
In the United States, if the person wants to redeem the amount before the age of 59.5, he will have to pay taxes plus a 10% fine.
While we are addressing the redemption issue, let’s see other 401k rules:
– The redemption can be made in case of disconnection from the company;
– The rescue can be done if the employee is experiencing some specific difficulty, such as an illness, for example.
– If the minimum age arrives, but the employee decides not to redeem the amount, the money can remain invested and earning. However, it is not allowed to make new deposits.
