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A 401 k plan is a retirement savings plan which is important for our future planning. Some companies will provide a list of the funds they use for their plan and give the opportunity to decide what amount is to be invest in and the percentage to invest. These funds will grow without being taxed and can be withdrawn at the age of 59 ½.
Advantages of 401k Retirement Plan
- A 401k retirement plan offers tax deductible contributions.
- The employer must make enough contributions to provide the retirement benefit.
- All employer contributions and any growth in the capital grow tax-free until withdrawal.
- Employees can usually predict the monthly retirement income.
DisAdvantages of 401k Retirement Plan
- An employee will be charged penalty of 10% on total contribution for withdrawing the 401 k savings before the age of 59 and half years.
- 401 k plans don't have the luxury of being insured by the Pension Benefit Guaranty Corporation
- If minimum distributions are not taken, then you have to pay 50% excise taxes.
Rules for 401k Retirement Plan
- 401 k is the section that defines qualified plan trusts.
- Salary deductions payments to the 401k retirement plan can only come directly from the company.
- Plan administrator should have written information about your particular plan.
- 401 k can only contribute the lesser of $14,000 or 100% of your compensation for the year.
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