401(k) Retirement Plans 

401(k) retirement plans are defined as special kinds of accounts that are funded through pre-tax payroll deductions. You can invest the funds in bonds, stocks, mutual funds as well as other assets. Over and above, they aren’t taxed on any dividends, capital gains or interest. Congress introduced this retirement savings vehicle in the year 1981. It derived its name from the section of the Internal Revenue Code (section 401k) that describes it.

Now, the question that may pop up in your mind is, how do you benefit from a 401k retirement plan? Well, read on to know the answer-

· Employer match programs
· Tax advantage
· Portability
· Investment customization and flexibility
· Loan and hardship withdrawals

The 401(k) Retirement Plans work in the following ways-

1. When you opt for a 401(k) plan you need to first inform the employer about the exact amount that you are willing to deposit in your retirement account. In general, you can deposit 15% of your overall monthly income.
2. Make sure that there is a perfect balance of yours as well as your employers’ contribution.
3. For long term investments, employers can choose from the pre-approved funds list.
4. After you have attained fifty nine and half years you can withdraw amount from your retirement account without having to pay any amount as penalty. However, once you have attained seventy and a half years you need to withdraw a needed amount which is the minimum distribution. If you fail to take up this step, you’ll have to pay an accumulation tax (approximately fifty percent of your needed distribution).
5. The 401(k) retirement plan also includes an option, known as “a catch up contribution option”. This option allows participants aged fifty and more to enhance their contribution in the retirement account. If you want to opt for a catch up contribution then make sure that you are in pay status. Over and above, you need to ensure that your routine plan contribution reaches any of the following limits-

§ The Plan's Deferral Limit (up to 15%).
§ The Annual Deferral Limit ($15,500 for 2008).

401(k) is a remarkable way following which you can go ahead with your Retirement Planning. It helps you in enhancing your savings and earn good profits by investing in the plan options simultaneously. Thus, for complete financial security post retirement make sure to opt for 401(k) Retirement Plans.

By: Elsa Thomas

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