A 401k is a good place to start in planning for your future retirement, no matter how far away you may be from the actual time. A 401k account is a special type of savings account that is funded directly through your paycheck each pay period. How it works is that you and your employer determine the amount that is to be deducted from each paycheck you receive, then the employer determines your pre-tax earnings and deducts your 401k funds from the paycheck prior to taxes.
Once deposited in the special savings account, the funds in the 401k are then invested into many different types of mutual funds, bonds, and stocks. The great thing about a 401k retirement plan is that all of these investments are completely free of taxes until the time comes for you to withdraw your money from the 401k account.
Beginning in the early part of the 1980's congress created the 401k retirement plan to allow people to begin saving money before they retire from their employment. It works as something of a financial net, ready for you when the time arrives.
There are several advantages with a 401k other than simply being a tax-exempt method of savings. Your employer may also have a match program. With this program, your employer would match part of your contribution into 401k. This means that whatever you contribute to your 401k, your employer will match a portion of it each pay period. Additionally, some employers raise the amount of their contribution when you have worked for them a certain number of years.
Another exciting aspect of 401k is that you have the option to determine where your funds will go when it is invested. To some, this is important and gives them the opportunity to maximize their retirement savings.
Furthermore, 401k has portability. If you should ever change jobs, you have many different options available in regard to your 401k. One of these options is to simply leave your 401k with your previous employer. This is the easiest option. However, you should be aware that the plan administrators could charge you for maintaining the account records. Another option is to roll the 401k over to the new employer's plan. This will allow you to continue to deposit money into your 401k to add to the money you have already earned and saved.
You may also be able to rollover the 401k into an IRA. This is a great option, especially if employers only offer limited investments. You would have greater control over where your money is invested. Last, you could opt to completely cash the 401k out. This option has a few drawbacks. When you cash out your 401k plan, you must pay the taxes on that money and you could also be accessed a penalty for early withdrawal.
It is extremely important that you fully understand all of your options. Weigh the results of each one prior to making any decision about your 401k. Being educated, practical and informed before making your decision will help benefit your 401k and retirement in the long run.
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How do I make the most of my 401k at work? They ...
By: Cheryl | 30-10-2008
How do I make the most of my 401k at work? They give you a long list of stocks and say "pick two". What percentage of my pay should I put in to have the employer mach my amount? I would appreciate any help you could give me. Sincerely, Cheryl
Mortgage forclosure if i am unable to ...
By: annieleffe | 28-10-2008
mortgage forclosure if i am unable to pay my mortgage, can the bank attach my 401k?
401K advice - will retire in 2 years.
By: Bess | 10-10-2008
I am 58 years old and plan to retire with a pension in 2010. My 401K was $755,000 at the beginning of 2008 and is currently at $596,000. The funds in my plan are International fund, Diversified equity fund, Balanced fund, small cap fund, Russell 3000, Bond Fund, Govenment security and company stock. I have only $230,000 invested ibetween Guaranteed (155) , Bond (57) and Government (18). the rest is approximately spread across the other funds except my company stock. I have transferred $310,000 into the guaranteed fund to stop the daily erosion of my 401K. Any advice you can offer or have I already made a big mistake?
401K WORRIES!!!!!
By: lsouthpaw48 | 09-10-2008
I'm looking to retire in about 7 more years.. My 401k has gone from 115,000 to 75,000 as of today. Should I stop looking at my 401k and let it ride or should I start investing my 30% paycheck deduction into low risk bonds and leave my high risk allocations alone??? any suggestions??
EGTRRA requirement question
By: JP | 08-10-2008
EGTRRA?: Our payroll service, who also services our 401K plan has informed us that we must pay them $400 for the EGTRRA conversion. We have six employees. Does this seem resonable? We are told by them that it is required. Thanks for your response
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By: rnnancy7 | 30-09-2008
401k I have a 401k but with the recent ecconomy I have fallen behind on all my bills I took out a hardship withdraw earlier this year but still am behind on my house by 2 months not to mention my cars I'm wondeting about cashing out my 401k to at least catch my house up, but all i can find says I have to be quitting my job to cash out is this true or is there a way to cash out without quitting
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