The Basics Of A 401K Account
Whether your employer offers one or not, you should learn the basics of a 401k account. This information will come in handy if your company ever switches to a 401k plan or you change jobs and are able to invest in a 401k. These accounts give you the ability to have some control over your retirement fund, unlike pensions where the company controls the funds.
A 401k plan is a retirement plan that is set up as a special type of account to take advantage of tax benefits. With a 401k plan, you can deposit money into the account tax-free. That means it comes out of your check before taxes are taken out of it. Instead of paying taxes on the money you put into your 401k at the current rate, you will be taxed when you withdraw the money from the account.
Most people can contribute up to $16, 500 per year in their 401k. If the employer offers matching, then the total of the employee's contributions and the matching cannot be more than $49, 000. When an employee reaches the age of 50, the limits rise to $22, 000 for the employee contribution and $54, 500 total. There are additional restrictions for employees who make over $110, 000 annually. If your salary is higher than this, your employer must follow a formula to determine how much you can contribute.
Employers have the option of matching employee contributions to a 401k plan. Not all employers offer this, but many do. Employer matching can be full or partial. Either way, there is usually some sort of limit on it. Employer matching is like free money, so if your employer matches you should try to contribute enough to get the maximum match amount if you can.
The money that is put into your 401k plan by your employer may not really belong to you right away. Some plans require funds to be vested before you gain full ownership of them. That means the money must be in the account for a certain amount of time before you will be able to access it.
If you need money for something, you might be able to take a loan out against your 401k to pay for it. This benefit is available with many 401k plans, but not all of them. If you do borrow against your 401k plan, you have to pay the loan back, along with interest. In most cases, if you stop working for the company the loan will be due in full immediately. There are tax penalties for not paying it back when this happens.
It's good to have a little knowledge about 401k plans in case you ever work for an employer who offers them. They are becoming very popular, and you never know when your employer might decide to start offering a 401k plan to its employees. - 23223
A 401k plan is a retirement plan that is set up as a special type of account to take advantage of tax benefits. With a 401k plan, you can deposit money into the account tax-free. That means it comes out of your check before taxes are taken out of it. Instead of paying taxes on the money you put into your 401k at the current rate, you will be taxed when you withdraw the money from the account.
Most people can contribute up to $16, 500 per year in their 401k. If the employer offers matching, then the total of the employee's contributions and the matching cannot be more than $49, 000. When an employee reaches the age of 50, the limits rise to $22, 000 for the employee contribution and $54, 500 total. There are additional restrictions for employees who make over $110, 000 annually. If your salary is higher than this, your employer must follow a formula to determine how much you can contribute.
Employers have the option of matching employee contributions to a 401k plan. Not all employers offer this, but many do. Employer matching can be full or partial. Either way, there is usually some sort of limit on it. Employer matching is like free money, so if your employer matches you should try to contribute enough to get the maximum match amount if you can.
The money that is put into your 401k plan by your employer may not really belong to you right away. Some plans require funds to be vested before you gain full ownership of them. That means the money must be in the account for a certain amount of time before you will be able to access it.
If you need money for something, you might be able to take a loan out against your 401k to pay for it. This benefit is available with many 401k plans, but not all of them. If you do borrow against your 401k plan, you have to pay the loan back, along with interest. In most cases, if you stop working for the company the loan will be due in full immediately. There are tax penalties for not paying it back when this happens.
It's good to have a little knowledge about 401k plans in case you ever work for an employer who offers them. They are becoming very popular, and you never know when your employer might decide to start offering a 401k plan to its employees. - 23223
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