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Making Sense of your 401 (k) Plan
You’ve probably heard people talking about 401 (k) plans. And you are probably also aware that the 401 (k) plan is one of the most popular retirement plans in America today. However, you may be a little hazy on the details of the plan.
That’s where we come in. Below we have outlined the main factors in your 401 (k) plan. Understanding how the 401 (k) plan works will ensure you make the right decision about your retirement-plan'>retirement.
Benefits of the 401 (k) Plan
Essentially, the 401 (k) plan is a retirement plan in which your employer directly deposits a certain amount of your pay check into your account. You then can decide where to invest your retirement fund money to make the most out of your money. Most people choose mutual funds which use stocks, bonds and other investments to multiply your 401 (k) plan. If you work for a larger company, you can also purchase some of your own companies stock. As you grow with your company, so will your investment.
The main benefit of a 401 (k) plan is that you will have money in your retirement account. You do not have to worry about supporting yourself when it comes time to leave the work force. In a 401 (k) plan you can also choose how much you want to save each pay check and where you want to invest your retirement money. You are making the decisions about your future and your money which is a very good feeling.
401 (k) plans also offer lower taxable income rates meaning you will not be taxed as much on this income. The money will simply go into your plan every week (or bi –weekly) without you having to worry about making deposits. In addition to the weekly deposits, you will be earning constantly with the rise of your stocks or bonds.
Starting as young as possible is the best way to ensure your retirement will be smooth sailing. If you start at the age of 25, for example, you can stand to save one or two million by the time you want to retire. Furthermore, 401 (k) plans make it possible to retire at a much earlier time than you may have expected, depending on how your mutual funds are doing.
The Fine Print of 401 (k) Plans
There are certain minor details that you also need to know about your 401 (k) plan. For one, if you withdrawal any funds from this account before the age of 59.5, then you will be taxed and fined a penalty of 10 percent. This is because the funds are there for retirement, and not before.
Another important fact about 401 (k) plans is that, even if your employer goes bankrupt, your 401 plan will still be covered and your money will be safe. This is a comforting thing to know, especially in the state of today’s economy.
401 (k) plans take the stress out of saving for retirement and give you a secure lifestyle to look forward to.