A 401k retirement plan allows employees to defer a part of their pay. That deferred amount is deducted from their paychecks and placed into the employer’s tax qualified plan. Federal income tax is not due on the deferred pay, or the plan’s earnings until the employee withdraws the funds from the plan. Here are the key factors:
- It’s Employer-sponsored investment account- Your employer partners with a financial services company to administer your plan. That company then gives you a limited number of investment options
- No income limits
- No penalties for cashing out in retirement (10% penalty if withdrawn before 59 1/2)
- Annual contribution: $17,500 (2013,2014)
401k retirement plans are the easiest way to save for retirement. The limited investment choices are a good thing because it simplifies your investment decisions. The money is automatically taken out of your paycheck. If your employer offers a 401k retirement plan and you’re eligible, you should definitely contribute. It’s never too late to start saving. If money is tight, then here’s a guide on how to budget, and save for retirement.
To conclude, work with a financial advisor and set clear financial goals. Make sure you have a yearly review of those goals, and adjust according to market trends and conditions. Happy investing!
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