The 401(k) Plan
A 401(k) Plan is a retirement savings plan where you, as an employee, can make contributions from your monthly or yearly paycheck before taxes are taken out. The plan offers several options from which one can pick the plan that best fit their needs. The contributions go directly into a 401(k) account and based on the options provided under the plan, you can choose the type of investments you want to get involved in and sign-up for.
There may be caps that are placed on the plan you select and the IRS (Internal Revenue Service) regulations put a limit on the percentage of your salary you can place in a 401(k) Plan. Restrictions also apply on how and when a person wants to withdraw the accrued assets in their specific plan. Penalties under the plan will apply if the money is withdrawn prior to a specified age. You can select your own investment products or hire a professional financial manager to guide you with this selection. Many 401(k) Plans are managed by a third party company.
The 401(k) Plan can be a supplement to a pension and it’s usually sponsored by an employer. The idea for starting a 401(k) started in the 1980’s and the name 401(k) Plan comes from the section of the tax code. An employee who has a 401(k) Plan has some control on how and where your money is being invested. Within a plan you can have a portfolio that is composed of money market investments, select stocks and bonds, etc.
For a Complimentary Financial Analysis, contact me.