401k 101

Anyone who has been in the work force and a taxpayer is familiar with 401k advice retirement plans. It helps many hardworking Americans save their hard earned money for the time they need it most, retirement. It is truly a milestone when one can enjoy life as a senior and not worry about residual income.

In order for this to happen, money must be saved in a special account. Typically money deposited in the 401k retirement plan is taken directly from an employee’s check. The money is taken before taxes and is matched by the company. This gives the extra incentive to invest wages, without paying taxes. There are many different advantages to obtaining a 401k retirement plan

1. Most companies that offer the benefit of a 401k retirement plan will match a certain percentage to deposit into the account and this adds up quickly, leaving the employee even more money without having to pay taxes on it.

2. It allows the employee to make a few tax free investments. The 401k gives the employee the chance at dabbling into the stock market, buying bonds, and even purchasing mutual funds. They can really make the account take off by spreading their investments in many different areas.

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3. The 401k retirement plan is fully transferable. It can be moved from one employer to the next without loosing any of the employee’s funds. That gives the investor peace of mind knowing that if something happened to their employment, they haven’t lost their money and can keep the money invested by the company.

Generally, it is against the rules set by the IRS, the government and the agency, if one is used, to draw any of the money out of the account before reaching retirement age. Making a withdrawal can be done under certain circumstances, for reasons such as foreclosure and education. Keep in mind, when a withdrawal is requested, it can have very heavy fines, sometimes as high as 40% of the withdrawal. This fine goes to pay the taxes that should have been paid on it if it went to payroll. This account is set up to help with retirement and if it is used before then, it will be taxed.

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