Important Facts About 401K Retirement Plans

By Essie Craft


When looking for a suitable savings program to provide an income stream after one has retired, numerous individuals are overwhelmed when they realize how many options are available. A person may discover during his or her search that 401k retirement plans are an ideal option. Below is some helpful information about this type of retirement tool:

A 401k is a type of savings plan that was designed to provide an income for individuals after they retire. Such plans are set up in such a way that employers and their employees alike can contribute. Some companies will match the amount the employee chooses to contribute. Others have a cap on the amount they will put into the fund on behalf of their workers.

There are technically 3 kinds of contributions associated with a 401k plan. These are matching contributions, nonelective contributions, and elective contributions. With the former, one's employer matches the amount he or she places in the fund each week.

An elective contribution is pretax money that one chooses to invest into the 401k rather than take the money as bring home pay. Non-elective contributions are employer deposited funds that go into the employee's account. The latter can not be converted into cash, however. Rather, the amount must go directly into the fund.

Certain limitations are in effect regarding the total dollar amount a person can place in such a program on an annual basis. Those who want to invest their money this way should check with the IRS to obtain the precise numbers, as they frequently change from one year to the next. When an individual has reached 50 years of age, the person is usually allowed to make extra contributions to the fund for the purpose of preparing for retirement.

When evaluating the different options available, consumers should carefully consider investing in a 401k. One of the benefits of such a fund is that it is considered very safe when compared with riskier alternatives, including stocks or investing in property or other tangible items that may not appreciate as one anticipates. Any individual who is offered a 401k will probably benefit from it after he or she retires.

Is good idea to enroll in a plan of this type as early in life as possible. This is because, not surprisingly, the longer a person pays into a fund of this kind, the more funds will be available after retirement. For this reason, those who are on a job search should ask all prospective employers whether or not the company offers such plans as part of a benefits package.

401k retirement plans are a wise option for essentially anyone. Therefore, if the opportunity arises, consumers are wise to begin placing a certain amount of their salary into such a plan. Those who have questions about such programs, or who are confused about exactly how they work, should seek the advice of a financial planner. This is because such an individual will be able to detail the pros and cons associated with such plans, and the type of person who will best benefit from this kind of retirement fund.




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