401(k) Retirement Plans

A 401(k) is a type of retirement savings account in the U.S., which takes its name from subsection 401(k)  of the Internal Revenue Code 401(k) are "defined contribution plans" with annual contributions limited (currently to $17,000). Contributions are "tax-deferred", deducted from paychecks before taxes and then taxed when a withdrawal is made from the 401(k) account. Depending on the employer's program a portion of the employee's contribution may be matched by the employer.

401(K) plans are tax-deferred retirement savings plans for employees. The employer sets them up and each company has a slightly different 401(k). They are part of a family of retirement plans known as "defined contribution" plans - the amount contributed is defined by the employer or the employee.

When you join a 401(K) plan, you tell your employer how much money you want to contribute to your account. This amount is deducted from your salary before taxes are applied, so you pay less income tax. More importantly, the money is deducted even before you have received it, making it the easiest savings plan to contribute to.

Your employer may match a portion of your contribution. The money is invested by the plan administrator (on your behalf) in mutual funds, bonds, money market accounts, etc. You decide the mix of investments. They usually have a list of investment vehicles you can choose from as well as some guidelines for the level of risk you are willing to take.

Since the plan is an incentive for retirement savings, there is one condition: if you withdraw the money before you are 59½ years old, you will have to pay tax as well as a 10% penalty fine to the IRS.

Plans which are set up under section 401(k) can also have employer contributions that cannot exceed other regulatory limits. Employer matching contributions can be made on behalf of designated Roth contributions, but the employer match must be made on a pre-tax basis.

Some plans also have a profit-sharing provision where employers make additional contributions to the account and may or may not require matching contributions by the employee. These additional contribution may or may not require a matching employee contribution to earn them. These profit-sharing contributions plus the matching contributions both cannot exceed 25% of the employee's pre-tax compensation. As with the matching funds, these contributions are also made on a pre-tax basis.

Find safe and affordable 401(k) Retirement Plans, get free quotes and compare retirement and investments plans. Let Bennett Insurance Group help when you are considering your needs for insurance products for your home or business. Contact us at 623-979-4140

Presented By:
Jim Bennett
Bennett Insurance Group
623-979-4140
http://jimbennettinsurance.com
jim@jimbennettinsurance.com