Whether your employer offers one or not, you should learn the basics of a 401k account. This information will come in handy if your company ever switches to a 401k plan or you change jobs and are able to invest in a 401k. These accounts give you the ability to have some control over your retirement fund, unlike pensions where the company controls the funds.
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.
Most companies that offer 401k plans also offer employer matching. That means that if you invest in your 401k plan, your company will also invest in your retirement plan on your behalf. Some employers match the full amount you contribute up to a certain percentage, while others only match part of your contribution. Employers may allow you to choose what the employer match is invested in, or they may invest the employer match portion in company stock or another investment of their choice.
The money that is put into your 401k plan by your employer may not really belong to you right away. Some plans require funds to be vested before you gain full ownership of them. That means the money must be in the account for a certain amount of time before you will be able to access it.
Some companies allow you to borrow against your 401k plan. When you take advantage of these loans, you usually get a pretty good interest rate. As you pay the loan back, you are paying yourself interest. It's best to proceed with caution when considering borrowing money against your 401k. If you quit or are fired from your job, you will have to pay the entire outstanding balance quickly or you will be penalized.
It's good to have a little knowledge about 401k plans in case you ever work for an employer who offers them. They are becoming very popular, and you never know when your employer might decide to start offering a 401k plan to its employees. - 31391
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.
Most companies that offer 401k plans also offer employer matching. That means that if you invest in your 401k plan, your company will also invest in your retirement plan on your behalf. Some employers match the full amount you contribute up to a certain percentage, while others only match part of your contribution. Employers may allow you to choose what the employer match is invested in, or they may invest the employer match portion in company stock or another investment of their choice.
The money that is put into your 401k plan by your employer may not really belong to you right away. Some plans require funds to be vested before you gain full ownership of them. That means the money must be in the account for a certain amount of time before you will be able to access it.
Some companies allow you to borrow against your 401k plan. When you take advantage of these loans, you usually get a pretty good interest rate. As you pay the loan back, you are paying yourself interest. It's best to proceed with caution when considering borrowing money against your 401k. If you quit or are fired from your job, you will have to pay the entire outstanding balance quickly or you will be penalized.
It's good to have a little knowledge about 401k plans in case you ever work for an employer who offers them. They are becoming very popular, and you never know when your employer might decide to start offering a 401k plan to its employees. - 31391
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