All About Money

Even though there’s a vast amount of information about 401k retirement floating around the internet, unless you have some general understanding about the basics you can feel as lost as a helpless, little child! When it comes to your money and investments in your future, coming at this half-cocked can be, not only frustrating, but very serious and financially disastrous to you!

Here are helpful “Things-To-Know” about 401k Contribution Limits and how 401k’s offer many benefits including some of these tips:

1. Generally, the vendor selected by the plan sponsor does all accounting, participant reporting, testing, and files 5500 reports with the IRS.
2. Excellent range of investment options available for the plan sponsor to offer within the plan.
3. This type of plan can permit loans and hardship withdrawals.
4. 401k plans may permit \”self-directed investment accounts\” and company stock purchase within the plan.

I hope I can help make this easier for you by listing some of the 401k plan basics for you here. I’m surely not an expert on 401 k info nor is this legal advice but I’ve discovered these to be cold-hard facts about general 401k information and they should at least arm you with enough knowledge to be able to carry on a conversation with someone in the investment or IRA business.

What is a 401k?

A 401(k) is a type of retirement plan that allows employees to save and invest for their own retirement. Through a 401(k), you can authorize your employer to deduct a certain amount of money from your paycheck before taxes are calculated, and to invest it in the 401(k) plan. Your money is invested in investment options that you choose from the ones offered through your company’s plan. The federal government established the 401(k) in 1981 with special tax advantages, to encourage people to prepare for retirement. It get’s it’s catchy name from the section of the Internal Revenue Code which established itself: yep…you guessed it, section 401(k).

How does a 401k retirement contributions plan work?

You decide how much money you want deducted from your paycheck and invested during each pay period, up to the legal maximum (the IRS sets an annual dollar limit each year). You also decide how to invest that money, choosing from your plan’s different investment options. The money you contribute to your 401(k) account is deducted from your pay before income taxes are taken out. This means that by contributing to a 401(k), you can actually lower the amount you pay each pay period in current taxes. For example, if you earn $1,000 each paycheck, and you contribute, say 5% ($50), you are only taxed on $950. You don’t owe income taxes on the money until you withdraw it from the plan, when you could be in a lower tax bracket.

While I understand that this may not be very extensive information, I hope these basic tips will still prove to be helpful to you!

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