Have you thought a lot about retirement? I’ve admitted on here before that I haven’t, at least, not as much as I should. I plan on starting some type of retirement fund in the next few
A 401k is a retirement savings plan. They are almost always maintained by one’s employer. Basically, upon your employment, you agree that a certain percentage of your income is placed into this account. In many instances your employer matches a certain part of that percentage. For example, every dollar you spend they may put in fifty cents.
There are two types of 401(k)’s
Traditional (non-Roth) 401k: This is also referred to as the “pre-tax” option. What happens is that you contribute funds into this 401k before they are taxed. So, the deduction occurs, and then whatever is left is what is actually taxed. This plan then taxes you upon retirement and your acceptance of funds from this 401k.
Roth 401k: This is referred to as the “post-tax” option. The funds that you contribute are now included in your taxable income, but the advantage here is that you are not taxed on these funds after you begin removing funds upon retirement (as long as you have had the account for at least 5 years).
Most employers offer one or the other; very few offer both options. Check with your employer and/or financial advisor before making any sort of decision about this.
Both employers and employees benefit from using a 401k instead of something like a required pension plan. For example, in a required pension, the employer must match funds. Then, you lose that money when you switch companies or you get a check to toss in the bank. Employers don’t have to deal with paying transfer costs and fees; all of that is in the mix already with a 401(k).
There are a few strings attached to having a 401k. First off, you cannot withdraw funds without penalty before you turn 59 and a half, unless there are certain criteria met (disability and “force out,” where if an employee is terminated, and their balance is less than $1,000, they can close and withdraw their funds). But, even if you hit 59 and a half, you really shouldn’t take out the funds, at least not unless you have to. Because, after you hit this age, you are able to take out a certain amount a year. Now, you are also forced to start taking funds out after you hit age 70 and a half. There are also limited contributions that you can make in a year, depending on your employer and your plan.
Any limitations and information that you would need on your company’s 401k should be provided by your company’s HR department. Always ask questions if you’re curious, and try to figure out exactly what your plan looks like and how the benefits work before committing to anything.
So, does your company offer a 401k? What do you see as the advantages and disadvantages of this? Would you consider a 401k if you had an option? Leave your thoughts in the comments and we’ll see you here Thursday!
Source: http://www.moneythinking.com/2012/03/20/401k-quick-facts/
A 401k is a retirement savings plan. They are almost always maintained by one’s employer. Basically, upon your employment, you agree that a certain percentage of your income is placed into this account. In many instances your employer matches a certain part of that percentage. For example, every dollar you spend they may put in fifty cents.
There are two types of 401(k)’s
Traditional (non-Roth) 401k: This is also referred to as the “pre-tax” option. What happens is that you contribute funds into this 401k before they are taxed. So, the deduction occurs, and then whatever is left is what is actually taxed. This plan then taxes you upon retirement and your acceptance of funds from this 401k.
Roth 401k: This is referred to as the “post-tax” option. The funds that you contribute are now included in your taxable income, but the advantage here is that you are not taxed on these funds after you begin removing funds upon retirement (as long as you have had the account for at least 5 years).
Most employers offer one or the other; very few offer both options. Check with your employer and/or financial advisor before making any sort of decision about this.
Both employers and employees benefit from using a 401k instead of something like a required pension plan. For example, in a required pension, the employer must match funds. Then, you lose that money when you switch companies or you get a check to toss in the bank. Employers don’t have to deal with paying transfer costs and fees; all of that is in the mix already with a 401(k).
There are a few strings attached to having a 401k. First off, you cannot withdraw funds without penalty before you turn 59 and a half, unless there are certain criteria met (disability and “force out,” where if an employee is terminated, and their balance is less than $1,000, they can close and withdraw their funds). But, even if you hit 59 and a half, you really shouldn’t take out the funds, at least not unless you have to. Because, after you hit this age, you are able to take out a certain amount a year. Now, you are also forced to start taking funds out after you hit age 70 and a half. There are also limited contributions that you can make in a year, depending on your employer and your plan.
Any limitations and information that you would need on your company’s 401k should be provided by your company’s HR department. Always ask questions if you’re curious, and try to figure out exactly what your plan looks like and how the benefits work before committing to anything.
So, does your company offer a 401k? What do you see as the advantages and disadvantages of this? Would you consider a 401k if you had an option? Leave your thoughts in the comments and we’ll see you here Thursday!
Source: http://www.moneythinking.com/2012/03/20/401k-quick-facts/
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