You Should Learn The Basics Of A 401K Account
Many companies have switched to 401k accounts for their employees' retirement plans instead of the traditional pension. This is often beneficial to the employee because the investment is handled by an outside investment company. Because of that, unless the employee invests in the stock of the company he works for, the chances of losing one's retirement income when an employer goes out of business is minimized. This article will help you understand the basics of a 401k account.
A 401k plan is a retirement plan that is set up as a special type of account to take advantage of tax benefits. With a 401k plan, you can deposit money into the account tax-free. That means it comes out of your check before taxes are taken out of it. Instead of paying taxes on the money you put into your 401k at the current rate, you will be taxed when you withdraw the money from the account.
If you make less than $110, 000 per year, you can contribute up to $16, 500 per year to your 401k, and the total contribution including your employer match cannot exceed $49, 000. The limits increase to $22, 000 and $54, 500 once you reach the age of fifty. If you make more than $110, 000 per year, your employer may be required to reduce the amount you can contribute so that you are not investing a higher percentage of your income than the average worker at your company.
Employers have the option of matching employee contributions to a 401k plan. Not all employers offer this, but many do. Employer matching can be full or partial. Either way, there is usually some sort of limit on it. Employer matching is like free money, so if your employer matches you should try to contribute enough to get the maximum match amount if you can.
The money that is invested in a 401k by your company match may or may not be vested immediately. What that means is that in some plans, you have to wait a certain period of time after the investment is made before the money is fully yours. The investment choices available to you in your 401k plan are chosen by your company. You can decide how to invest your money within those options. Sometimes the options are quite limited.
If you need money for something, you might be able to take a loan out against your 401k to pay for it. This benefit is available with many 401k plans, but not all of them. If you do borrow against your 401k plan, you have to pay the loan back, along with interest. In most cases, if you stop working for the company the loan will be due in full immediately. There are tax penalties for not paying it back when this happens.
Even if your company doesn't offer a 401k plan, it can't hurt to learn how they work. Someday you might just need to know. - 23200
A 401k plan is a retirement plan that is set up as a special type of account to take advantage of tax benefits. With a 401k plan, you can deposit money into the account tax-free. That means it comes out of your check before taxes are taken out of it. Instead of paying taxes on the money you put into your 401k at the current rate, you will be taxed when you withdraw the money from the account.
If you make less than $110, 000 per year, you can contribute up to $16, 500 per year to your 401k, and the total contribution including your employer match cannot exceed $49, 000. The limits increase to $22, 000 and $54, 500 once you reach the age of fifty. If you make more than $110, 000 per year, your employer may be required to reduce the amount you can contribute so that you are not investing a higher percentage of your income than the average worker at your company.
Employers have the option of matching employee contributions to a 401k plan. Not all employers offer this, but many do. Employer matching can be full or partial. Either way, there is usually some sort of limit on it. Employer matching is like free money, so if your employer matches you should try to contribute enough to get the maximum match amount if you can.
The money that is invested in a 401k by your company match may or may not be vested immediately. What that means is that in some plans, you have to wait a certain period of time after the investment is made before the money is fully yours. The investment choices available to you in your 401k plan are chosen by your company. You can decide how to invest your money within those options. Sometimes the options are quite limited.
If you need money for something, you might be able to take a loan out against your 401k to pay for it. This benefit is available with many 401k plans, but not all of them. If you do borrow against your 401k plan, you have to pay the loan back, along with interest. In most cases, if you stop working for the company the loan will be due in full immediately. There are tax penalties for not paying it back when this happens.
Even if your company doesn't offer a 401k plan, it can't hurt to learn how they work. Someday you might just need to know. - 23200
About the Author:
Are you looking for a solid 401k retirement investment strategy that is good for you? Before you spend your time looking for quality retirement investing information, look at BeforeYouInvest.com's guide to invest money online before you do anything else. BeforeYouInvest.com reviews everything from investing for retirement to the 401K direct rollover so take a look.
posted by X - Men @ 7:15 AM
0 Comments
0 Comments:
Post a Comment
Subscribe to Post Comments [Atom]
<< Home